Government announces "pasty tax" U-turn

Bakers and their supporters hold a giant sausage roll as they protest opposite Downing Street in central London April 26, 2012.

LONDON (Reuters) - The government is to modify VAT on hot takeaway food after months of criticism that its planned "pasty tax" showed it was out of touch with ordinary people.

A Treasury spokeswoman said that VAT would not be applied to hot takeaway food that is cooling down after being cooked - for example the popular Cornish pasties which shops rarely sell straight from the oven.

The pasty tax, announced in the March budget, prompted accusations that Chancellor George Osborne and Prime Minister David Cameron, who both come from privileged backgrounds, were unable to empathise with ordinary Britons.

The criticism forced ministers, including Cameron, to claim they enjoyed eating Cornish pasties.

The decision will have implications for bakers such as Greggs (GRG.L), Britain's largest food-on-the-go retailer.

The Treasury spokeswoman also said the government would cut a tax on static caravans, used by many Britons seeking a low cost holiday, to five percent from a proposed 20 percent.

The Conservatives shed hundreds of seats in local elections earlier this month, and recent opinion polls show their popularity and reputation for economic competence are slipping.

(Reporting by Fiona Shaikh, writing by Mohammed Abbas; Editing by Myra MacDonald)