UK local business tax will rise by two per cent this month, three per cent lower than previously predicted.

Chancellor Alistair Darling said the Treasury will defer the previously mooted five per cent hike, and instead spread the remaining three per cent over the next two years.

Mr Darling said the move was prompted by the recession, and is an attempt to shore-up UK business.

The Chancellor told Parliament the rate of inflation has fallen sharply since September - an indicator used to set local business taxation.

"I want to bring forward a measure that will help businesses, so I can tell the House that businesses need pay only two per cent of the annual increase this year and they can pay the remaining three percent smoothed out over the following two years," he said.

Business leaders have welcomed the measure.

Engineering Employers' Federation's head of economic policy, Lee Hopley, told the Reuters news agency: "Just as companies were facing the prospect of a sharp rise in business rates, the Chancellor's announcement will provide some much needed relief.

"The last thing businesses needed were higher taxes as they struggled to cut costs and this decision will allow companies to defer part of their tax bill, giving breathing space until their bottom lines recover."

The Treasury estimated that business ratepayers will be able to defer around £600m pounds over 1.6 million properties as a result of the changes.

(PR/JM)