The government is staging a humiliating U-turn on the pasty tax after encountering widespread opposition to the plan, according to reports.
Pasties and other baked products were set to be hit by VAT if they were served above ambient temperature.
Under the U-turn they will only be taxed if heated after being taken out the oven or if kept in heat-preserving containers. Pasties which are cooling down after being taken out the oven will not be taxed.
Supermarkets selling rotisserie chickens will still be hit by the VAT however.
Plans to impose a tax on static caravans will be reduced from 20% to just five per cent.
"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," said Labour shadow chief secretary to the Treasury Rachel Reeves.
"Ministers were clearly anxious to avoid a defeat in the House of Commons on Labour's motion next month, after parliament's last vote on the caravan tax saw the government's majority slashed to just 25."
Stephen Gilbert, Lib Dem MP for St Austell and Newquay, said: "If confirmed, the Cornish people will have won and there will be dancing in the streets from Land’s End to the Tamar.
"The strength of feeling from local people and the national baking industry has been clear since these proposals were announced. Plans to extend VAT to batch-baked goods would be unfair, unenforceable and cost jobs and investment across the country."
The climb-down comes after months of well-orchestrated opposition to the move from bakeries, west country MPs and sections of the press.
Many commentators highlighted the timing of the announcement – during recess and when most journalists were busy covering the Leveson inquiry – as evidence the government was trying to bury bad news.
Some analysts suggested the U-turn was another example of incompetent media management, with the announcement serving to resuscitate an issue that had almost been put to bed.
The Treasury insisted the move was a response to consultation on the proposals.
The pasty tax idea, which was announced in George Osborne's Budget, prompted several spectacular own-goals from the government.
Mr Osborne admitted he "couldn't remember the last time" he ate at a Greggs bakery, while David Cameron said he ate his last pasty at an outlet in Leeds which had not existed for several years.
Both instances prompted accusations that the coalition was out-of-touch with the lives of ordinary people.