Chancellor George Osborne promised to to balance Britain's books within five years as he used today's emergency Budget to rip into the inheritance left by Labour.
Promising to deal decisively with the UK's record debts, he warned of his economic plan: "Yes it is tough; but it is also fair."
He pulled no punches about the state he said the last government left the economy in,.
"This is an emergency Budget, so let me speak plainly about the emergency that we face.
"The coalition Government has inherited from its predecessor the largest budget deficit of any economy in Europe with the single exception of Ireland.
"One pound in every four we spend is being borrowed. What we have not inherited from our predecessor is a credible plan to reduce their record deficit."
He said postponing difficult decisions was not an option.
"The consequence for Britain would be severe. Higher interest rates, more business failures, sharper rises in unemployment, and potentially even a catastrophic loss of confidence and the end of the recovery."
And in comments that will be seen as a dig at former chancellor and prime minister Gordon Brown, who was not in the Commons, Mr Osborne said: "I am not going to hide hard choices from the British people or bury them in the small print of the Budget documents.
"You're going to hear them straight from me, here in this speech."
He said everyone would be asked to contribute.
"But in return we make this commitment. Everyone will share in the rewards when we succeed.
"When we say that we are all in this together, we mean it."
Outlining the cuts, Mr Osborne said child benefit would be frozen for three years and tax credits would be cut for families with incomes over £40,000 a year.
He said government departments whose budgets have not been ring-fenced would face spending cuts of 25%.
And he confirmed the public sector pay freeze would be extended for two years for staff on £21,000 or more.
The 1.7 million public servants who earn less than £21,000 will receive a flat pay rise worth £250 in both years, he announced.
Armed forcing serving in Afghanistan will also see their operational allowance doubled to £4,800.
The Chancellor said the government would accelerate the increase in the state pension age to 66.
He acknowledged that growth would initially be slower as a result of the Budget measures, but would pick up towards the end of the Parliament.
He said that the Office for Budget Responsibility (OBR) now estimated growth this year of 1.2% and 2.3% next year - compared to its previous forecasts of 1.3% of 2.6%.
However, he said that from 2012 growth would pick up to 2.8%, then 2.9% and 2.7%, as against previous OBR forecasts of 2.8%, 2.8% and 2.6%.
Borrowing this year is now expected to be £149 billion compared to an estimate of £155 billion under the previous government's plans.
It will then fall back to £116 billion, £89 billion, £60 billion, £37 billion, and £20 billion in the years ahead.
Mr Osborne said that he would wipe £1.8 billion a year off the housing benefit bill by the end of the Parliament, capping weekly payments at £400.
He also said the Government would introduce a medical assessment for Disability Living Allowance from 2013 for new and existing claimants.
The total welfare shake-up will save the country £11 billion by 2014/15, he said.
Corporation tax will be cut - in line with the Conservatives' election manifesto - with the headline rate being progressively reduced over the course of the Parliament from 28p to 24p.
Turning to the banking sector, the Chancellor said the Government was taking the initiative globally by introducing a bank levy from January 2011 which was expected to generate over £2 billion annually.
He said: "There are those who have argued that we should wait until every country in the G20 introduces a bank levy.
"I believe that is not reasonable or fair. Indeed I can tell the House that the French and Germans have joined the UK today in committing to introduce a bank balance sheet levy.
"In a joint statement, our three governments have pledged to ensure our banks make a fair contribution to reflect the risks they pose."