It’s another blow to the Conservative-led government, as George Osborne has agreed to modify its controversial budget proposals to extend VAT on takeaway hot pies - in a move that was labelled by Labour as ‘U-turns from a shambolic government’.

After a protest orchestrated by Greggs, the nation’s largest chain of high-street bakers, the government has signalled a retreat on tax rises on pasties and caravans. The climbdown over pasty tax will cost the Treasury £70 million annually.

Now, the VAT will be charged on food served straight from the oven or kept hot, such as hot chickens wrapped in heat-retaining packaging sold in supermarket rotisseries. Pasties, sausage rolls and other hot snacks that cool down naturally in cabinets will continue to be tax-free.

In another U-turn, static caravans will be now charged VAT at only 5%, instead of 20%. The modification in the caravan tax came after claims that it would cost 7,000 jobs in the caravan industry.

The move, which was confirmed in a letter to the Treasury Select Committee Chairman Andrew Tyrie, has won praise from coalition backbenchers, some of whom protested against the Government in the Commons.

George Eustice, a Tory MP from Cornwall who protested against the tax, said, “This welcome announcement means all pasties will be exempt from VAT, and shows this has been a genuine consultation.”

However, Labour’s Shadow Chief Cecretary to the Treasury, Rachel Reeves, branded the policy reversal as “a total and utter shambles”. “These partial U-turns, just a few weeks after ministers were defending the pasty tax and caravan tax, show just how ill-thought through the Budget was and how out of touch David Cameron and George Osborne are”, she said.

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