The average family will be £400 a year poorer as a result of George Osborne’s emergency Budget, according to the Treasury.
But Conservatives and Liberal Democrats insisted they had been forced to take dramatic measures because the last Labour government failed to get public spending under control.
The coalition Government’s first budget sparked furious arguments at Westminster as Labour accused the Conservatives of threatening jobs, by cutting public spending by £61 billion, and putting up taxes for the poorest, by increasing VAT to 20 per cent.
Acting Labour leader Harriet Harman said: “This is a Tory Budget that will throw people out of work, that will hold back economic growth and will harm vital public services.” And she reserved her harshest comments for the Conservatives’ Liberal Democrat partners who, she said, had fought against measures like the VAT increase which they were now supporting.
“The Liberal Democrat leaders have sacrificed everything they ever stood for to ride in ministerial cars and ride on the coat tails of the Tory Government.”
But George Osborne, the Chancellor, insisted he had been forced to take action because Labour had left the public finances in such a mess.
He told the Commons: “Today we take decisive action to deal with the debts we inherited and confront the greatest economic risk facing our country. We’ve been tough but we’ve also been fair. We have set the course for a balanced budget and falling national debt by the end of this Parliament.”
Tory leader David Cameron won plaudits in opposition for his willingness to admit that harsh cuts would be required to reduce the deficit, but support could drain away now that difficult decisions are actually being taken.
And Liberal Democrat leader Nick Clegg was facing opposition from within his own party, as backbench MP Bob Russell said: “I can’t see myself at the moment voting for the Budget.”
The debate focused on two key issues; whether the Government needed to start cutting Britain’s deficit as quickly as it has, and whether the measures it chose to take will unfairly raise taxes for the least wealthy.
Key measures include increasing VAT 17.5 per cent to 20 per cent from January 4 next year.
Capital gains tax will be increased to 28 per cent for top rate taxpayers, a measure likely to hit people on higher incomes who are more likely to have investments.
But income tax will be cut, by increasing personal allowances for basic rate tax payers by £1,000 to £7,475 from next April, taking 880,000 of the lowest paid out of income tax altogether.
At the same time, most public sector pay will be frozen for two years while child benefit was frozen for three years.
And the Chancellor promised to put an end to the current housing benefit system, which sees some families claiming up to £104,000 a year, and costs the country £21 billion annually.
Instead a number of reforms will be introduced, including setting a maximum limit of £400 a week for a house with four or more bedrooms on the amount that can be claimed.
Public spending will be cut by £61 billion, but health and overseas development will be protected.
It means spending in other departments will fall by 25 per cent on average, but in practice some will be hit harder than others.
One cabinet minister warned the decisions were a price worth paying to avoid the economy plunging into the chaos seen in countries such as Greece.
Culture Secretary Jeremy Hunt told the Birmingham Post: “It is painful for everyone, but it is shared fairly.”
He added: “If you look at a country like Greece that didn’t deal with its debt then you end up having to make more cuts, and far more painful, down the road.”
But Labour’s Shadow Treasury spokesman Liam Byrne (Lab Hodge Hill), a Birmingham MP, said: “People on modest incomes right across Birmingham will be hurt by these decisions.
“It is going to hit growth and jobs, and put up prices in the shops”.