Chancellor Jeremy Hunt has been urged to freeze business rates again, amid warnings that a multi-billion hike in bills could dent investment and leave many small firms “on the brink”.

Last autumn the chancellor announced a major support package worth £13.6 billion to help businesses still recovering from the pandemic. It included freezing business rates, which usually increase annually, as well as increasing the discount for retail hospitality and leisure businesses from 50 per cent to 75 per cent for 12 months, capped at £110,000 per firm.

However, business rates are now set to increase again next April under the government’s “multiplier”, which is pegged to inflation in September, as measured by the consumer price index.

While inflation fell in July from 7.9 per cent to 6.8 per cent, the Treasury is braced for it to rebound again in August, meaning firms could face a steep increase in their rates. Coupled with the ending of 75 per cent rate relief, it will add further financial strain for many firms.

An analysis by UKHospitality suggests that increasing business rates by inflation could increase bills for the hospitality sector by £220 million next year. This would come on top of an additional £630 million cost from rates relief ending, leaving restaurants, pubs and cafés facing an additional bill of £850 million in the new financial year.

It would mean that a restaurant with an average rateable value of £51,000 that would have benefited from £19,500 in relief this year could be facing an annual business rates bill of £26,000 next year.

The industry argues that government support this year was vital to keeping many businesses afloat during the energy and cost of living crisis, and that ending this could see many smaller firms closing.

One London-based restaurant, which had been planning to open three new venues in the next year, creating 60 new jobs, said that it would be forced to cancel the expansion unless Hunt extended government support.

It added that inflation increases and the loss of 75 per cent relief would mean its annual business rate bill would rise from £51,220 to £204,880 from April — an increase of £154,000.

Kate Nicholls, chief executive of UKHospitality, said: “The looming business rates hike facing hospitality businesses is a ticking time bomb that has the potential to cause as much damage next year as the energy crisis. The ending of current business rates relief next April could mean an additional £630 million hit, while an inflationary increase to rates adds a further £220 million. Together, it’s an almost billion-pound bill that could put businesses on the brink.

“The current business rates relief package has been critical for businesses to navigate cost pressures across energy, food and drink, as well as workforce pressures, and has kept small, independent businesses afloat. These are the ones struggling the most, with independent business markedly less confident in their future prospects.

“We need to see urgent action from government to avoid this upcoming bill, with firm commitments that there will be no inflationary increase to the total sum of business rates, and that business rates relief will continue for hospitality businesses.

“Inaction is the difference between firms scaling up, investing and driving economic growth and recovery, or accelerating price rises for consumers — or even worse, businesses shutting their doors for good.”