The policy, which was proposed in March’s Budget, was expected to have hit philanthropy to universities and had drawn criticism from sector groups.

Changes were set to come into force in April 2013 that would have capped the amount of tax relief that philanthropists could claim from their donations at £50,000 or 25 per cent of their income, whichever was higher.

However, George Osborne, the chancellor, said while the government would proceed with a cap on income tax relief for the wealthy, it would no longer put a limit on relief for giving money to charity.

“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,” he said.

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Nicola Dandridge, chief executive of Universities UK, said: “This is good news for universities. We are very pleased that George Osborne has taken the views of the charity sector on board.”

Joanna Motion, a partner at fundraising consultancy More Partnership, said that she had expected a “complicated and dispiriting compromise”.

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But with a complete U-turn on the policy, she said: “Well done George [Osborne] for cutting through the muddle.”

Kate Hunter, executive director of the Council for Advancement and Support of Education in Europe, said the organisation was “delighted” with the decision.

“This is great news for UK higher education specifically, education more broadly and the entire charitable sector,” she said.

The vice-chancellors of the universities of Oxford and Cambridge had written to Mr Osborne to express their concern about the changes.

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According to the latest Ross-Case survey of philanthropy in the sector, higher education institutions received a cash income of £560 million from donations in 2010-11, up from £517 million the previous year. This makes up about 2 per cent of the sector’s total income.

Some 44 per cent of the cash income went to the universities of Oxford and Cambridge in 2010-11, while the other members of the Russell Group netted 26 per cent.

david.matthews@tsleducation.com