Osborne vows to beat deficit with huge cuts and VAT hike

Chancellor pledges to eradicate UK deficit within five years as budget details £30bn spending cuts

Cutting room: Osborne claimed deep cuts were "unavoidable"

Today's budget detailed various measures designed to encourage entrepreneurship and private sector growth. But both sides of the coalition are under fire for breaking VAT promises and planning "reckless" spending cuts.

Going beyond his election pledge to address the majority of the UK's deficit, chancellor of the exchequer George Osborne claimed he would eradicate it within this parliament's lifetime.

He also promised to begin reducing UK debt as a percentage of GDP by 2015/16. He asserted that, off the back of the measures unveiled today, the public sector's net debt will begin to drop by 2014/15.

Some government departments are facing budget reductions of 25 per cent within five years as Osborne looks to shave another £17bn annually off public spending levels. Overall, 77 per cent of the planned deficit reduction is slated to come from public spending cuts, rather than tax increases.

Business breaks
Beginning next year, corporation tax will be cut by one per cent a year for four years. This will take it down to a level of 24 per cent, while small businesses will pay a rate of 20 per cent from next year. In another business-friendly measure, the employers National Insurance threshold is also set to rise.

New businesses are to be encouraged through a plan to reward startups outside London, the south east and the east of England with further National Insurance exemptions. Firms will be absolved from £5,000 worth of contributions for each of their first 10 employees.

High earners are to be hit in the pocket through a 10-point hike in capital gains tax. The new 28 per cent rate will be introduced immediately. But the 10 per cent rate for entrepreneurs will be extended to cover the first £5m of qualifying gains – more than double the previous £2m threshold.

VAT's life
One of the budget's most controversial measures is the 2.5 point rise in VAT, which will increase to 20 per cent from January. The government claims this will be cash-generative to the tune of £13bn a year by the end its five-year term.

But acting Labour leader Harriet Harman was quick to point out that, in the lead-up to the election, David Cameron claimed he had no plans to raise VAT. The Lib Dems were also reminded of their Tory VAT Bombshell campaign poster, as Harman labelled the budget "reckless".

Video nasty
The tech sector was hit by news that planned tax relief for the video games industry is to be shelved. Labour's controversial, £6-a-year landline levy will also be scrapped. The initiative was unveiled by the previous government to help pay for the roll out of superfast broadband.

Elsewhere, banks operating in the UK are set to face an extra £2bn in annual levies, a measure which is also to be implemented in France and Germany, claimed the chancellor. Public sector employees earning upwards of £21,000 are facing a two-year pay freeze. Those below the threshold will get a flat £250 rise.

Divided we stand
Raising the income tax threshold by more than £3,000 to £10,000 was one of the Lib Dem's central manifesto pledges. But today a raise of just £1,000 was announced and the new £7,475 level will remain in place until 2013/14. Osborne stressed that raising the threshold to £10,000 remains the government's long-term goal.

The Trades Union Congress was one of the first to criticise today's plans. General secretary Brendan Barber took issue with Osborne's claim that "we're all in this together".

"This Budget was economically dangerous and socially divisive," he said. " The one thing we can now say is that we are very definitely not all in this together."