The Coalition Government announced another humiliating U-turn yesterday – this time on its controversial "charity tax".

Campaigners, including universities, hailed the climbdown as a victory for common sense following warnings the plans would cost the sector billions and send many charitable organisations to the wall.

But there was controversy over the timing of the announcement, which coincided with embattled Culture Secretary Jeremy Hunt's appearance before the Leveson Inquiry.

Labour accused the Coalition of attempting to "bury bad news" with a U-turn campaigners had been calling for since March.

The charity tax is the third Budget announcement abandoned in as many days as the Coalition battles to bring weeks of negative headlines under control.

Earlier this week, ministers announced similar climbdowns on VAT on caravans and hot baked goods, the so-called "pasty tax".

The Tory-LibDem Coalition had previously insisted that a wide-ranging cap on tax reliefs was necessary amid fears some millionaires were paying derisory levels of less than 20%.

But just before lunchtime yesterday, George Osborne took to the airwaves to announce that charitable giving would be exempt from the plans.

Within hours, even members of Mr Osborne's own party were warning the string of U-turns in recent days could have lasting effects for the Chancellor.

Andrew Tyrie, chairman of the powerful Treasury Select Committee, said Mr Osborne could face an even more difficult Budget next year "with vested interest groups now encouraged to press for concessions".

But Scottish billionaire and philanthropist Sir Tom Hunter, who had earlier criticised the plans as "punitive", said Mr Osborne had had the strength to admit when he was wrong, adding that the decision "should be applauded and not used as a political football".

Simon Jennings, deputy director at Universities Scotland, said the move was "very welcome".

He added: "Philanthropy is a significant source of income for universities which helps support student scholarships and vital research."

The Charities Aid Foundation described the move as "a bold decision" and "the right thing".

But Andy Rich, head of charities at HW Fisher & Company chartered accountants, accused ministers of viewing wealthy donors as cheats.

"The Government failed to understand just how close charitable giving is to many people's hearts — and that the vast, vast majority of those who donate large sums are doing so for philanthropic, not tax-avoidance reasons," he said. "The Government mistook simple giving for fiscal subterfuge."

Mr Osborne had said: "We've listened to charities, and any kind of cap could have potentially damaged donations to charities, so we're not going to do that.

"Frankly, the Government's going to focus on the big economic issues: the eurozone crisis, getting the British economy moving, dealing with the deficit.

"We're going to focus all our efforts on keeping Britain safe in the gathering storm."

Ed Balls, Labour's Shadow Chancellor, said it was "another day, another Budget tax U-turn". He urged another policy reversal, this time on the "granny tax".