Philip Hammond has backed down over his planned Budget hike in National Insurance Contributions (NICs) for the self-employed.
In a letter to Conservative MPs, the Chancellor said he would not proceed with the planned increase in Class 4 NICs which he announced just a week ago.
"There will be no increases in NICs rates in this Parliament," he said.
Mr Hammond had faced a furious backlash by Conservative backbenchers, who accused him of breaking a general election manifesto commitment not to put up NICs, income tax or VAT, while hitting traditional Tory supporters.
In his letter, the Chancellor said: "It is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also the spirit of the commitments that were made.
"In the light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measure set out in the Budget."