Philip Hammond has dropped his planned increase in National Insurance contributions.
It is reported that Mr Hammond has told MPs the NI hike for self-employed workers, announced in last week's Budget, will not go ahead.
The u-turn comes after fierce criticism of Mr Hammond's NI policy, which contradicts a tax-freeze pledge made in the Tories' 2015 manifesto.
In a letter outlining the decision, Mr Hammond says he has "decided not to proceed with the Class 4 NIC measures [which deal with self-employed individuals] set out in the Budget. There will be no increases in NICs rates [sic] in this Parliament.
"We will continue with the abolition of Class 2 NICs from April 2018. The cost of the changes I am announcing today will be funded by measures to be announced in the Autumn Budget."
The Chancellor insists that "it remains our judgement that the current differences in benefit entitlement [between autonomous and non-autonomous workers] no longer justify the scale of difference in the level of total NICs paid."
However, he says he and Theresa May made a commitment ahead of last year's Autumn Statement that the manifesto tax-lock pledge would be "honoured in full". While insisting the freeze only applied to Class 1 NI contributions, he says the new measure is "not adequate" in its compliance with the manifesto commitment.