Alistair Darling says the move will help businesses in the downturn
Chancellor Alistair Darling has gone back on plans to increase business rates by 5% from 1 April.
Mr Darling said the rise was linked to the Retail Prices Index last year, but RPI inflation had now fallen to zero.
He said businesses would face only a 2% rise this year and the remaining 3% would be smoothed out over the following two years.
"I believe this will provide real and genuine help for businesses in this country," said Mr Darling.
He estimated that one-and-a-half million properties would gain from the change and £600m would be deferred.
Mr Darling's announcement applies only to England at present. However, the government said it would "engage with the Scottish, Welsh and Northern Ireland administrations to clarify the situation for ratepayers in respect of business property in Scotland, Wales and Northern Ireland".
"I am very conscious of the fact that businesses in this country were faced with an increase to business rates of 5% simply because the increase in business rates is linked to the rate of RPI inflation last autumn, last September," Mr Darling said.
"But RPI inflation has now fallen to 0% in the last month and it is expected that it will fall further than that."
The impending rise in business rates had been feared by many firms, which said they could ill afford to pay 5% more in the midst of a recession.
John Wright, chairman of the Federation of Small Businesses (FSB), welcomed Mr Darling's move, saying: "This is good news for small businesses, as far as it goes. This shows that FSB pressure has finally paid off."
Mr Wright said the government still had "more room for manoeuvre" on business rates, and called on Mr Darling to bring in automatic small business rate relief for eligible small firms.
For its part, the British Chambers of Commerce was less enthusiastic. Head of policy Kevin Hoctor said: "Staggering the cost is still an increase and it will be complex. Businesses will still be hit at a time when they have restricted cash-flow and growth."
Mr Hoctor said some firms could still go bust under the strain, adding: "This doesn't make any sense in an economic downturn. It will be business that drives the UK out of this recession, so I would urge government to find a way of supporting firms with these extra costs."
The Conservatives welcomed the move but said the government needed to do more to help businesses.
"There are a range of other tax increases which will damage businesses in the UK including taxes on empty properties, the end of transitional relief and the vast tax increases on businesses in ports," said Caroline Spelman, shadow local government and communities secretary.
"The government needs to go through them all and look at the implications," she added.