The review will look at the structure of the current system, including how businesses use property and how it can be modernised to better reflect changes in the value of property.

It will also ask whether a move away from a property based tax towards alternative tax bases would be fairer.

Business rates are currently calculated based on the value of a firm’s property multiplied by a figure set by the government every April.

Small businesses had the relief on their annual rate doubled until next year while rate increases were capped at 2%, in a move announced in last year’s Autumn Statement.

Rates have increased by 25% in the past six years and many companies say the tax is their biggest burden.

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The review will report back by Budget 2016.

Chief Secretary to the Treasury Danny Alexander (pictured) said: “Our system of business rates was created nearly 30 years ago. Since that time, the worlds of commerce and industry have changed beyond recognition. I’ve been impressed by the representations made by the business community and I know that business rates are a considerable cost.

“The government has taken measures to help businesses by capping rates and introducing reliefs for smaller businesses. But now the time has come for a radical review of this important tax. We want to ensure the business rates system is fair, efficient and effective.”