Chancellor George Osborne has made his third Budget U-turn in less than a week, scrapping plans to cap tax relief on charitable donations after coming under massive pressure from charities.
Labour said the Budget had become an "embarrassing shambles" after earlier climbdowns over VAT on hot pasties and caravans.
Charities said they were delighted that the Chancellor responded to their Give It Back, George campaign, which was supported by more than 1,000 voluntary sector organisations.
The cap, limiting tax relief at £50,000 or 25% of income (whichever is higher), was proposed in Mr Osborne's March 21 Budget and was expected to save the Treasury £50 million-£80 million a year.
The Chancellor told MPs then that it was wrong to allow wealthy individuals to make "unlimited" use of income tax reliefs. It is understood that he was particularly concerned about donations to bogus foreign charities being used to avoid tax in the UK.
Charities warned that they stood to lose a significant proportion of the £1.4 billion of donations on which reliefs are claimed each year, and Conservative MPs complained that the measure did not fit with the Government's policy of promoting volunteering through the Big Society idea.
The Treasury had been holding talks with charities and major donors to assess the likely impact of the change but no announcement was expected until the end of a consultation this summer. Mr Osborne has now written to representatives of the sector to tell them he was ditching the cap proposal.
He said: "It is clear from our conversations with charities that any kind of cap could damage donations and, as I said at the Budget, that's not what we want at all. So we've listened."
Labour accused Mr Osborne of trying to "bury bad news" by unveiling his latest climbdown during the parliamentary recess, at a time when Culture Secretary Jeremy Hunt's evidence to the Leveson Inquiry was dominating the news agenda.
Shadow Chancellor Ed Balls said: "Another day, another Budget tax U-turn - three successive U-turns in four days - all when Parliament is not sitting and just a few weeks after ministers were defending these measures, show just what an embarrassing shambles George Osborne's Budget has become."