Osborne is to reverse plans to charge VAT on food that is designed to cool down, such as sausage rolls and pasties.
The climbdown follows weeks of protest, including by Tory MPs, and will together cost the cash-strapped Treasury as much as £70m.
PM David Cameron had defended the move, designed to put 20% VAT on all food sold "above ambient temperature", insisting he loved a pasty.
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