In his speech to MPs today, the chancellor said the government would conduct a full review of the structure of business rates, which would report by Budget 2016.
Under the current system of part-localisation, local government retains 50% of business rate growth, which is intended to encourage town halls to approve development.
The Autumn Statement document published by the Treasury said any reforms would not affect town hall finances.
‘The review will be fiscally neutral and consistent with the government’s agreed financing of local authorities,’ it stated.
Announcing the review, Osborne urged business groups that have called for an overhaul of the tax to engage with ministers on reform.
Business leaders, including the CBI, say that the current system, which is a charge based on the rental value of properties, disadvantages firms with large high street presences against online retailers.
He also announced small business rate relief would continue in 2016/17, exempting around 385,000 of the smallest businesses from rates and a further 190,000 benefiting from some reduction in the tax.
‘The government has repeatedly helped small businesses deal with the burden of business rates,’ he told MPs. ‘We do so again today.’
Responding to the announcement, a Local Government Association spokesman said: 'Councils have been urging government to overhaul business rates and remove the obstacles which prevent us from supporting high street shops, small firms and new start-ups as much as we would like to. It is encouraging news for business that the chancellor has listened.
‘We need a system of local business taxation which is fit for the 21st century, which supports the areas in which companies operate and which helps, rather than hinders, business and the growth of our economy. We also need to ensure the business rates system gives local areas the freedom and the finance to invest in the infrastructure and the services upon which businesses rely.’
He said it was vital that any changes do not have an adverse impact on local government funding or investment made on the basis of the current system.
‘The money which a business pays should be retained by local government to invest in the vital local services, all of which help local businesses either directly or indirectly.’
County Councils Network chair David Hodge said he would back any moves to support UK entrepreneurs and businesses.
‘Today’s announcement on business rates review for England needs to place devolution at its core to boost the UK economy as a whole,’ he added.
‘A more devolved system of local business taxation, with powers for local areas to vary their rates and retain a greater share of the proceeds of growth, is essential for counties aiming to deliver the infrastructure, skilled workforce and investment that creates the environment for local businesses to flourish.’
The British Property Federation said a root-and-branch review of the system was welcome.
‘We hope it is no-holds-barred and will deliver something fit for the 21st century, and one that benefits all sectors of the economy,’ chief executive Liz Peace said.
‘We look forward to making a positive contribution on that basis.’
The BPF has called for a move to an annual system of revaluations rather than every five years, to ensure that the tax, which is based on the rateable value of business properties, better reflects economic conditions.
