Chancellor George Osborne increased VAT from 17.5% to 20% and cut welfare spending as he moved “decisively” to tackle Britain’s record debts.
Child benefit and public sector pay will be frozen and 25% cut from public service spending – but alcohol, tobacco and fuel will escape tax hikes.
Unveiling his first Budget to MPs, Mr Osborne said “tough but fair” action on debt was “unavoidable”.
But Labour said it was “reckless” and would “throw people out of work”.
Acting Labour leader Harriet Harman said Mr Osborne’s budget would stifle growth and hit hardest “those who can least afford it”.
BBC Political Editor Nick Robinson described the financial statement as a “massive gamble economically and politically”.
It represents a major departure from the previous government’s economic policies, with business leaders saying they hoped it would be a “defining moment” in Britain’s economic recovery.
Full story: BBC News – Budget: Osborne’s ‘tough’ package puts VAT up to 20%