The Chancellor's first budget provided a cut in Corporation Tax, but large rises in VAT and Capital Gains Tax

George Osborne this afternoon delivered a “tough but fair” Budget, promising to build a sustainable private-sector recovery. It was, he said, a Budget that “pays for the past and the plans for the future”. The Chancellor promised to go further than the Conservatives' pre-election promise and allow the country to balance its books by the end of the parliament rather than simply cutting the bulk of the structural deficit.

There was good news for business on Corporation Tax, which will be cut by one per cent every year until the close of parliament, leaving the UK with a rate of 24 per cent, among the lowest in the world, said Osborne. To encourage regional growth, any business starting up outside London and the south east will be exempt from £5,000 of National Insurance contributions for each of the first 10 employees they hire, said Osborne.

Osborne’s repeated references to past failings provided an unsubtle rebuke to the theory that this was an ideological Budget driven by a political preference for a smaller state. He did however describe a situation in which the state accounts for nearly half of all national income as "completely unsustainable". This was, he said, “an unavoidable Budget”, a fiscal restructuring made up of 77 per cent of spending cuts, and 23 per cent of tax rises. Whitehall expenditure will be slashed by 25 per cent over four years, with health and international aid the only exemptions.

Osborne pledged to abolish Labour’s planned broadband tax to fund broadband in rural areas. This would be funded by TV licence fee underspend. There was less good news for video games companies, which face the removal of a tax break Osborne described as “poorly targeted”. Many in the industry believe the UK will struggle to compete against foreign computer games firms, which themselves benefit from subsidies.

Capital Gains Tax will rise to 28 per cent for higher-rate payers from midnight. It will remain at 18 per cent for basic and lower-rate payers, said Osborne. The £10,100 CGT threshold remains, which should at least prevent panic dumping of share portfolios. Appearing to quell any dissent in the coalition government, Osborne said the Treasury believed a higher increase in CGT would lead to a fall in revenues. Worse news for the Lib Dems arrived courtesy of Osborne’s proposed bank levy, due to start in 2011. The tax is expected to raise £2bn, a good £3bn less than the Lib Dems were hoping for.

Many of the Chancellor’s announcements promised to spread the pain as widely as possible, without impacting on those who could least afford it. This difficult balance wasn’t always achieved. Although Osborne didn’t go as far as Lady Thatcher, who in 1979 doubled VAT within months of winning power, VAT will still rise to 20 per cent, a measure the Lib Dems had previously described as “regressive”. But food, children's clothing, newspapers and books will remain exempt, said Osborne.

Before he stepped up to the despatch box, Osborne had already revealed his intention to raise the income tax threshold by £1,000 to £7,475. And while a two-year pay freeze will be imposed on public sector workers, the 1.7 million workers earning less than £21,000 will instead receive a £250 pay rise this year and next. Osborne’s plan to freeze child benefit for three years however, plus his intention to limit housing benefits, seemed rather more tough than fair.