Chancellor George Osborne defended the Budget as "tough but fair" today as he accused the previous Labour government of leaving the economy in a "massive mess".

Osborne says everyone is being asked to pay a contribution to help curb the deficit (see the How the tax shake-up affects you MSE News story).

"The damage to the economy, the people losing their jobs, will come if we do not sort out our problems in this country, and the welfare bills have got out of control," he told GMTV.

"The hole in the public finances was so great and the debts were so large, and people at home know, if you have got a debt problem, you have got to deal with it."

His remarks were made as Treasury Chief Secretary Danny Alexander defended as "unavoidable" a rise in VAT to 20% from January announced in yesterday's Budget after it exposed strains in the coalition with the Conservatives.

Osborne says the situation is an "emergency" and he believes his Budget could prevent Britain heading down "the road to ruin".

"When you turn on the news and you can see what is happening in Spain, in Italy, in Greece and other countries that are having to take pretty drastic steps to deal with their debts, I don't want Britain to be in that place.

"I want us to take pre-emptive action. It is an emergency and that's why we needed an emergency budget."

He added: "The biggest risk out there are the debts, and if we don't deal with the debts then I'm afraid the country will be on the road to ruin and I'm not prepared to see that happen."

The Chancellor added: "I'm sure if we get this right we'll get the jobs, we'll get the growth, we'll get the prosperity."

VAT rise defended

Alexander said the VAT move - which his party vigorously opposed in the General Election campaign - was the only alternative to still deeper spending cuts.

Challenged on GMTV over the increase, Osborne said: "When we got into Government, the hole in the budget was bigger than we thought.

"We asked an independent expert to look at it and they agreed, and also around Europe, this debt problem is getting worse and worse, people see it on their telly, they see it in Greece, they see it in Spain."

He said he did not want to take measures such as raising VAT or freezing child benefit.

"It is not because I want to do these things, it is because this country faces a very, very serious debt problem."

He added: "The Labour Party were in charge of this country for 13 years and they left a massive mess for the economy, a massive mess with the debt."

Benefits squeeze

Osborne's remarks come after he announced an emergency package of tax increases and spending cuts yesterday on a scale unseen in decades.

A massive £11 billion benefits squeeze was also included in an harsh austerity package which he said would clear the structural deficit by the time of the next general election in 2015.

More pain will follow in the autumn spending review when Government departments whose budgets are not ring-fenced face cuts in the order of 25%, he warned.

He sought to soften the blow by restoring the state pension link to earnings from next year, raising income tax allowances for basic rate payers and a £2 billion boost for poor families.

However the VAT measure sparked deep unease among Liberal Democrats as Labour accused them of acting as "fig leaves" for a Budget which would still hit the most vulnerable hardest.

Colchester Lib Dem MP Bob Russell issued a stark warning to the leadership, declaring: "I can't see myself at the moment voting for the Budget."

Child benefit will be frozen for three years, tax credits cut for families on more than £40,000, housing benefit capped and disability living allowance claimants face a new medical assessment.

Future benefit increases will be linked to a lower measure of inflation, public sector pay frozen for two years for those earning £21,000-plus and banks face a £2 billion-a-year levy.

Corporation tax is to be cut from 28p to 24p over the course of the Parliament and capital gains tax on non-business assets raised - but only to 28p, lower than anticipated.

Alcohol, tobacco and fuel were spared an immediate squeeze but Mr Osborne warned of fresh financial measures in the autumn to tackle binge and underage drinking.

A spending review - to be announced on October 20 - will cut departmental spending by a further £17 billion on top of the £44 billion planned under Labour.

Labour hits back

Acting Labour leader Harriet Harman had sought to exploit potential divisions within the coalition when she responded to the Budget in the Commons.

"How could they support everything they fought against? How could they let down everyone who voted for them? How could they let the Tories exploit them?" she demanded.

"This is a Tory Budget that will throw people out of work, that will hold back economic growth and will harm vital public services."

Shadow Chancellor Alistair Darling said the Government was taking a "huge risk" by cutting public spending so quickly.

"I'm very concerned, and I'm not the only one - there are a number of commentators and others who are extremely concerned that this Government is taking a risk," he told the BBC Radio 4 Today programme.

"This is not pain-free. Get this wrong and the consequences could be dire for many, many people and businesses in this country.

"Also, they announced a whole screed of stuff yesterday and, as the days go by, I suspect some of the small print will reveal one or two horrors that aren't immediately obvious.

"But also, with a coalition Government and a flaky set of partners like the Liberal Democrats, I just wonder whether they will be able to deliver some of this stuff."

Further reading / Key links

See MSE's cost-cutting guides on: High Street Haggling, Cheap Online Shopping, Cheap Insurance, Cheap Petrol & Diesel, Cheap Flights, State Pension, Pensions, Council Tax Banding, Discount Brokers and Shares