LONDON BRIEFING:WHEN BRITISH chancellor George Osborne announced his intention to address some of the loopholes and anomalies in Britain's VAT system, it was little more than a throwaway remark in his budget speech. The headline-grabbing measures were child benefits, tax cuts for the rich and the "granny tax" on pensioners.

Or so we thought. In the end, though, the proposal to slap VAT on hot baked snacks such as Cornish pasties, pies and sausage rolls generated a far angrier reaction and produced many more headlines than any other measure in the March budget.

The campaign against the VAT move was led by Newcastle-based bakery chain Greggs, famous for its pasties and sausage rolls, and was swiftly dubbed “Pastygate”.

The Sun and other tabloids piled in, portraying the imposition of VAT on hot snacks as part of the class war – ordinary men and women were being forced to pay more for their favourite foods while the toffs would continue to eat VAT-free caviar with silver spoons. More than half a million people signed a petition against the VAT raid and bakers staged a protest march to Downing Street.

So there was jubilation late on Monday when the chancellor was forced into an embarrassing U-turn – or, as the Sun put it, “Pasty La Vista, Taxman”.

Hot takeaway food that cools down after being cooked, including pasties and sausage rolls, are to remain VAT-free.

Greggs, Britain’s biggest baker with a chain of 1,600 shops, hailed the victory. Its shares, which have tumbled since the budget, jumped 8 per cent in relief yesterday.

Laying on the hyperbole, one MP declared there would be “dancing in the streets from Land’s End to the Tamar” at the decision.

As a general rule, it doesn’t do to go round feeling sorry for chancellors, but it is hard not to feel a twinge of sympathy for Osborne. After all, his decision to levy 20 per cent VAT on hot savoury snacks would simply have brought pasty purveyors in line with fish-and-chip shops and Indian restaurants. He clearly had no idea of the furore that a move motivated by a desire to simplify the VAT system would create.

On the other hand, he and his advisers should have thought a little harder about how it might go down with ordinary voters, many of whom already feel Osborne and his millionaire colleagues in the cabinet are hopelessly out of touch.

The chancellor was pilloried for admitting that he couldn’t remember the last time he’d been in a Greggs shop, while Labour MPs, keen to underline their working-class credentials, queued up to speak of their love for the calorie-laden snack.

If simplification of the tax system was Osborne’s main aim, then he has failed miserably. As it stands now, a pasty fresh out of the oven will be VAT-free, as will a pasty that has been put on the shelf to cool. But if your snack is kept warm on a hot plate or is sold in heat-retaining packaging, then VAT will be charged.

You will also be charged VAT if you ask the baker to warm it up in the microwave before you buy it. The government is also going ahead with plans to impose VAT on the rotisserie chickens sold in supermarkets, which the tax authorities rule are intended by the retailer to be eaten hot.

The 20 per cent tax would have been significant, taking the price of a steak pasty from £2.50 (€3) to £3 – or even more in a posh pasty shop – which is why Greggs fought the measure so hard.

Pasties are not Osborne’s only U-turn. Almost as unpopular as the pasty tax was his decision to charge VAT on “static caravans” – holiday caravans in caravan parks.

This, too, was seen as an assault on the working class, and the UK National Caravan Council warned it could put 7,000 jobs at risk, as well as costing the tourism trade more than £100 million.

The government was facing defeat in a Commons vote on the caravans measure, so static caravans for holidays will now attract VAT at the reduced rate of 5 per cent, rather than the full 20 per cent.

Climbdowns don’t come cheap. The cost of the concessions on pasties and caravans is estimated at more than £100 million annually in lost VAT revenue. Victory for the campaigners may be sweet now, but they can be sure that the chancellor will squeeze the cash out of them some other way in his autumn budget.

Fiona Walsh writes for the Guardian newspaper in London