The government has told local authorities that business rates will increase to 5% next year, a move that could hit many small businesses that are already struggling.

The Confederation of British Industry (CBI) has branded the rise as unnecessary and warned that it will affect firms at the worst possible time.

"The CBI had called for a freeze in business rates, to give the economy a much needed boost during these exceptionally difficult times. But councils will now have carte blanche to raise £1.15bn extra in business tax next year," said Dr Neil Bentley of the CBI.

This announcement follows recent news that councils are to be given the power to charge an additional two pence in the pound on business rates to pay for local development projects.