Philip Hammond has indicated that he is prepared to take measures in the Budget to help those worst affected by the business rates hike in an olive branch to Tory rebels.

The Chancellor has told Tory MPs he was “alive” to the impact the changes will have on some high street shops and was “open” about ways to help.

The comments are the first indication that he could seek to mitigate the impact of the business rates change in April when he unveils his Budget next month.

Mr Hammond also indicated he wants more fundamental reform of the system in future to make sure online retailers such as Amazon do not benefit to the detriment of the high street.

He admitted that the rise of internet giants had presented a “challenge” to how the current system, which is based on taxing property, was working.

A Treasury source said: “He’s open to listening to the issues of those who are hardest hit, but there was no decision either way.”

The source also said he was willing to tackle the rise of online retailers which could avoid steep business rates – based on rental prices – because they locate stores in rural areas.

“One point that he raised… is the challenge faced by the digital economy. That’s something that obviously you can’t do something about overnight,” the source said.

“This is a property tax. He made the point that the growth in the digital economy presents a challenge to that type of taxation and that’s something that has to be explored more widely with HMRC and other departments.”

The comments mark a significant change in position for the Government, which until now has been blaming criticism over the rates change on a “relentless” campaign by big business.

Tory MPs who expressed their concerns in a private meeting with Mr Hammond praised the more conciliatory tone.

One change proposed during a meeting of the 1922 Tory backbench committee was for more generous financial help over the “transition period” for businesses facing a rates hike, it is understood.

Another was for big supermarkets to be barred from having lower fees when rates were changed for the first time in seven years in April.

Mr Hammond made no guarantees, but after a week of growing pressure on the Government he was said to be in “listening mode”. Some firms are facing increases of up to 400 per cent. Around half a dozen Tory MPs are understood to have raised their concerns during the meeting.

“He clearly gets there is an issue,” one Tory MP told The Daily Telegraph. “He did seem open to the idea of transitional relief [for those worst hit]”.

The comments were a marked contrast to a letter sent by Sajid Javid, the Communities Secretary, and David Gauke, Chief Secretary to the Treasury, at the weekend.

The pair told MPs that a “relentless campaign of distortions and half-truths” was to blame for the growing anger over business rates.

However, their letter was under attack on Monday night as industry experts questioned the analysis of how councils across England would be affected.

Mr Javid and Mr Gauke said that, on average, business rates in 259 of England’s 326 councils would drop in April. However, analysts claimed that the statistics ignored inflation, which will add around 2 per cent to every bill, and predicted that 5 per cent of appeals would be successful – which is disputed.

When these assumptions were removed, analysts said only 135 councils would see a fall in business rates, with 191 seeing increases.

Jerry Schurder, head of business rates at Gerald Eve, said: “The figures provided to Tory MPs show that the DCLG [Department for Communities and Local Government] is living in a parallel universe.” 

However Government sources robustly defended the analysis, calling the claims “nonsense” and scaremongering”, adding that they had been clear about the calculations. It can also be revealed that more than 20 MPs and peers wrote to the Chancellor three months ago demanding extra help for businesses affected by the rates rise but had their calls rejected.

Politicians representing London, including Tory MPs Victoria Borwick, Bob Neil and Mark Field, sent a letter to Mr Hammond in November warning that businesses would “struggle”.

They called for extra transitional relief, new measures to “mitigate” the worst rises and “long-term” reform.

However, in his response Mr Hammond refused to lend his support to any of the proposals. Treasury sources stressed that bills are due to go out within weeks, which means the Chancellor is limited in what he can do in next month’s Budget.

But they made clear that Mr Hammond understood the concerns raised by MPs and that he was minded to help those firms facing sharp increases if possible. 

Business rates reform | Details of the proposed changes

What is changing?

From April 2016 1.9m British properties will be valued based on 2015 rental values, rather than their 2008 values. The revaluation, which normally occurs every five years, was delayed to avoid disrupting the general election.

What impact will that have?

As a result, the majority of British companies which have properties with a rateable value of more than £15,000 will face soaring rates bills as rents have increased since the recession. Some retailers in the capital will face 400pc increases over the next 5 years, while rates will fall for many businesses outside London. In regional towns high street rents have slumped since the financial crisis.

Annual rates increases have been capped at 42pc, but this is significantly higher than the 12.5pc cap during the last revaluation in 2008.

What about the appeal process?

The Government is also reforming the business rates appeal process. As part of the reform the Valuation Tribunal for England (VTE) can only order a change to the rateable value of a property if the existing valuation was "outside the bounds of reasonable professional judgement". Currently the VTE can order a change where it sees fit.

A worrying part of the proposed changes means that any appeal claim within a margin of error - expected to be 15pc - will be automatically thrown out.

What happens in the event of miscalculations?

Analysis for The Telegraph has revealed that the Government typically sets aside between £1.2bn and £1.5bn for business rates miscalculations. As a result businesses could face a black hole of up to £6bn over the next five years. The changes mean that businesses will have to pay up, even if the bill is wrong. 

Source@ The Telegraph