Chancellor George Osborne has announced a u-turn on his controversial plan to impose VAT on the Cornish pasty.

After the amendment, food such as sausage rolls or pasties will not be liable for VAT as long as they are cooling down naturally on shelf, rather than being kept hot in a special cabinet.

In his March Budget speech, Osborne said he was closing a loophole which meant that VAT is charged on some hot takeaway food such as fish and chips while most was zero-rated. He announced that VAT would be charged at 20% on any food sold at above-ambient temperature, except for freshly baked bread.

Objectors claimed that the ‘pasty tax’ proposal would force high street bakers out of business, and create a new anomaly, because some freshly baked food would be above ambient temperature on a cold day but not when the sun was shining.

The Association of Convenience Stores has welcomed confirmation that the Chancellor is to reconsider the charging of VAT on hot takeaway food. ACS chief executive James Lowman said: “Government were right to identify that the current rules on hot food takeaway are confusing and open to inconsistent interpretation. Unfortunately we did not believe the measure proposed would have delivered the clarity desired; nor could we support a measure that would have led to an overall increase in the cost of food to consumers.

“We await an opportunity to review the detail of the government’s new policy and will continue to argue for an policy that is clear, consistently applied and fair to retailers and consumers.”

The Treasury said VAT would still be imposed on some hot foods that are currently zero-rated, such as hot chickens wrapped in heat-retaining packaging sold in supermarket rotisseries.