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George Osborne has cut growth and borrowing forecasts in the coalition government's emergency Budget which also raises VAT to 20 per cent from next year.
The chancellor announced that VAT is set to increase from 17.5 per cent to 20 per cent, as part of the biggest package of tax increases and spending cuts in a generation.
Osborne said his Budget would deal decisively with the country's record debt, "it pays for the past and plans for the future".
However, the full details of the chancellor's plans will not be known until the spending review on October 20 2010, which will set out in detail how government departments will cut their spending.
He announced that child benefit will be frozen for the next three years and there are to be cuts to both family tax credits and housing benefits.
And public sector workers face a two-year pay freeze.
However, 1.7 million of those earning less than £21,000 will get a flat pay-rise worth £250 in both years.
Osborne told MPs questions are being asked about the "credibility and liquidity" of the government.
He told the chamber: "Early, determined action has earned us credibility in international markets."
"I'm not going to hide hard choices from the British people or bury them in the small print of the Budget document," the chancellor said.
Everyone will be asked to contribute to reducing the deficit and that everyone will "share in the rewards when we succeed", he said.
He told the chamber: "In this Parliament we will ensure that debt is falling as a percentage of GDP by 2015/16."
The chancellor also confirmed that the income tax allowance will be increased by £1,000 and that a new bank levy will be introduced from January 2011 and set out a series of measures to promote enterprise.
"It is simply not possible to deal with a budget deficit of this size without undertaking lasting reform of welfare," Osborne said.
Expenditure on Royal activities through the civil list are to remain static at £7.9m a year, the chancellor added.
Acting Labour leader Harriet Harman said it was a "reckless" Budget which was driven by ideology rather than economics.
"This is what they want; this Budget is not driven by economics but by ideology – their commitment to a smaller state," she said.
"This is a Tory budget that will throw people out of work, which will hold back economic growth and will harm vital public services.
She added: "Yes this is his first Budget, but it's the same old Tories".
And she attacked the Liberal Democrats for joining the Conservatives in a coalition government.
"It includes things the Lib Dems have always fought against; surely they can not vote for this?" she said.
"This reckless Tory budget would not be possible without the Lib Dems.
"The Lib Dems denounced early cuts, now they are backing them; they denounced VAT increases now they are voting for them.
"How could they support everything they fought against? How could they let down everyone down who voted for them?"
She went on: "The Lib Dems have sacrificed everything they ever stood for to ride in ministerial cars"
"Twenty-two Lib Dem ministerial jobs have been bought at the costs of tens of thousands of other people's."
"The Lib Dems used to stand up for people's jobs, now they only stand up for their own".
Singling out the rise in VAT, Harman said it was a Budget of "broken promises" as during the election campaign David Cameron had said he had no plans to increase the tax.
"The chancellor tells us that his plans are fair, that the rich will pay most, that is not true," she said.
"VAT penalises the poor, it's unfair when cuts in public spending hit those people and those areas where public spending and benefits matter most".
Treasury select committee chair Andrew Tyrie attacked the acting Labour leader's response to the Budget, stating that all three parties had committed themselves to sharp cuts in spending.
The Conservative MP said that Osborne had made the "best of a very weak hand".
He told MPs: "I do think this was an astonishing Budget, a phenomenal Budget, a tour de force.
"It really was a further addition to the early economic radicalism of the coalition government," with further changes to financial regulation and the OBR.
Tyrie also called for assurances that the chancellor would be able to change his mind should circumstances demand it.
"The global economic situation is fluid and fragile. If we were to find ourselves in another global downturn, triggered perhaps by a global fiscal contraction, we need to know that he would deploy all the tools that are required to avoid deflation," Tyrie said.
"The policy framework must leave him with enough room to alter course if circumstances change.
"Without that, credibility can collapse in the face of unforeseen events - and the one thing I do predict is that there will be quite a few."
And John Redwood, the former conservative Wales secretary, attacked Harman directly, calling her lack of an admission of Labour’s economic failures a "disgrace".
Article Comments
In a budget that focused on significant cuts to spending and changes to taxation, the Chancellor had relatively little to say on the environment. We hope this does not indicate a retreat by Ministers from their desire to be 'the greenest government ever' or the advocacy of environmental issues by both the Conservatives and the Liberal Democrats when they were in Opposition.
Ben Stafford
24th Jun 2010 at 5:36 pm
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