The Government's promise of free admission for everyone to national museums and galleries is dead, Chris Smith, the Culture Secretary, will concede this week.
Labour had promised free access for everyone by April 2001, but a series of financial disasters and a growing dispute over VAT have finally killed off the plan.
The announcement, expected on Wednesday, comes as museums and galleries prepare to give free admission to pensioners from Saturday.
The climbdown has been prompted partly by the extra cash needed to bail out the troubled Royal Armouries Museum in Leeds, and by the cost of the new Tate Modern gallery at London's former Bankside power station.
However, the budget problems have been compounded by the escalating row over VAT, which could even threaten the successful free-entrance scheme for children that was introduced last year.
Chris Smith has been delighted with the scheme for children, which has seen visits rise by 20 per cent.
A number of museums have opposed the Government's free-access policy because it would leave them unable to reclaim VAT, and it is understood that some are threatening to return to full charging across the age range unless they can keep their tax rebates.
Under Customs and Excise rules, institutions that charge for entry, such as the Natural History Museum, are considered as businesses and can recover VAT. Free museums and galleries, such as the Tate and British Museum, cannot. Some institutions have resisted universal free admission because it would cost them millions.
Tax officers have now warned that any museums which charge adults risk losing VAT rebates because of the numbers of visitors going free.
Mark Jones, director of the National Museum of Scotland, which charges, said: "Customs and Excise have indicated to us that if too large a proportion of our visitors were to go in free, then they would want to calculate our ability to reclaim VAT on a pro-rata basis."
Charles Saumarez Smith, director of the National Portrait Gallery, which does not charge, said it was clear that the Government's policy was beginning to unravel.
"The Government talks about joined-up government. But Customs and Excise are undercutting the policy of another branch of government. The problem requires a creative solution."
Discussions have begun between the Department for Culture and Customs and Excise. Meanwhile, the National Art Collections Fund (NACF), which funds purchases of art for the nation, has consulted tax experts to try to break the deadlock.
David Barrie, the NACF's director, said: "We know Chris Smith is strongly in favour of universal free admission, and that the single biggest obstacle to the achievement of that goal is the problem of unrecoverable VAT.
"If it is VAT regulations that really are holding up progress on the implementation of this laudable policy, then surely it is the VAT regulations that should give way."Reuse content