The controversial pasty tax has been scrapped by chancellor George Osborne.

The levy, which would have slapped an extra 20% on freshly baked products such as pasties and sausage rolls, was thrown out last night.

The move will delight high street baker Greggs, which had warned of job losses if the proposed tax went ahead.  A third of the company’s turnover is made up from savoury sales.

At the time of the announcement, Greggs’ share price plunged 15%. But they rose 9% in the wake of the government’s U-turn.

The news was also well received by bakers in Cornwall. Lib Dem MP Stephen Gilbert said the decision would have the people of Cornwall “dancing in the streets”. But Labour MPs called the U-turn as a “shambles”.

The VAT hike will still apply to any business that keeps food hot, including supermarket rotisserie chickens.