Staying close to the Conservatives’ pre-election plans on attacking the deficit, the Budget set out a 77/23 mix of spending cuts to tax rises. Civil servants will bear a weighty share of the burden of spending cuts. Their one-year pay freeze will be extended to two years – though Osborne also extended protection for lower-paid civil servants, announcing that the 1.7m earning under £21,000 will receive an annual rise of £250. Meanwhile, former Labour work and pensions secretary John Hutton is to oversee a review of public sector pensions, with his interim report timed to feed into the October spending review.

These massive spending cuts are, the chancellor said, designed to reduce borrowing from £149bn this year to just £20bn by 2015-16, enabling the government to completely eliminate the deficit and begin paying down government debt by the time of the next election. The budget deficit this year is 10.1 per cent, Osborne said, and will fall to 1.1 per cent by 2015-16. The structural deficit is less than half this figure, at 4.8 per cent, and will be eliminated by 2015-16 in favour of a 0.8 per cent surplus.

Nonetheless, these continued deficits will push total government debt up from 62 per cent of GDP this year to 70 per cent in 2013-14, falling back to 67 per cent in 2015-16. The cuts will save £3bn a year in interest payments by 2015-16, said Osborne, but total government spending will actually rise from £637bn this year to £711bn in 2015, due in part to interest payments that will total £250bn over the Parliament.

These spending changes will come against a backdrop of steady but modest recovery in the wider economy, Osborne argued. The new Office of Budget Responsibility expects growth of 1.2 per cent this year, rising to 2.9 per cent in 2013 before falling back to 2.7 per cent. Unemployment will peak at 8.1 per cent this year, but will only fall by two percentage points over the next five years.

Keen to protect investment in infrastructure, Osborne announced that there will be no further cuts in capital spending; John Major’s government had, he said, made an error in the early ‘90s when it reduced capital expenditure. Indeed, Osborne restated the government’s commitment to key transport projects in the Midlands and North, including Manchester’s Metrolink extension and the redevelopment of Birmingham’s New Street station. Meanwhile, the government’s coffers will be boosted by selling off the railway link High-Speed One, the student loan book, public bookmaker the Tote, and the air traffic control organisation NATS.

While tax rises will fill less than a quarter of the current gap between income and expenditure, Osborne still had to announce a hefty 2.5 per cent rise in VAT, taking it up to 20 per cent from 4 January 2011 and raising an additional £13bn by 2015. Alcohol and tobacco were spared a rise – and Labour’s proposed levy on cider will not now come into force – but some handouts such as the Health in Pregnancy grant were abolished.

The news was mixed for businesses. Corporation tax will be cut by 1p a year over the next four years, reducing it to 24 per cent – “the lowest rate of any major western economy”, said Osborne – and small firms will see their rate fall to 20 per cent. Meanwhile, in what looks remarkably like the beginnings of a regional policy, over the next three years small businesses outside the greater South-East will be spared up to £5000 in National Insurance payments for each of their first 10 employees.

Unsurprisingly, the banks saw a hike in taxation, with a new bank levy on the balance sheets of UK-based organisations expected to raise £2bn annually. This announcement has been coordinated with similar action by Germany and France, said Osborne, rejecting calls from the right for the UK to wait for widespread international agreement on bank taxation.

Lower-earners received only the smallest of fillips in the Budget, with the income tax allowance rising by £1000 to £7475 – far below the £10,000 that was the Liberal Democrats’ aim – and child tax credits going up by £150. And the rise in capital gains allowance was also smaller than senior Lib Dems had wanted: a 10 per cent rise to 28 per cent, applied to higher-rate income taxpayers only. Osborne had considered the potential mechanisms for ameliorating the impact of a bigger hike on savers and pensioners, he said, but rejected them as over-complex.

Meanwhile, in an attempt to keep council tax rises down, Osborne announced that if local authorities “can keep their costs down”, the government “will help” them to freeze rates. And older people will benefit from the relinking of the state pension to earnings. Pensioners will see a guaranteed minimum 2.5 per cent rise in future years, said Osborne, and if either earnings or price inflation rises above that number then they’ll receive a rise equal to the higher figure.

Finally, benefits are to be whittled away – though the big stick remains sheathed. The benefits bill has gone up by 45 per cent in the last 10 years, said the chancellor. Housing benefit was probably the biggest cut, with maximum payments set for different types of property and the rights to bigger properties restricted. Those claiming Disability Living Allowance will receive a medical assessment to try to drive down the number of claimants, and lone parents will be expected to seek work as soon as their youngest child goes to school. Tax credits will be reduced for those earning more than £40,000, and all benefits will be linked to consumer price inflation rather than retail prices.

Arguing that his Budget protects lower earners and asks the wealthy to pay a fair share of the nation’s vast debt, Osborne reiterated that – as he puts it – “we are all in this together”. Well, nearly all: the civil list, he had already announced, is one small element of government spending that will be spared the axes busily chopping their way down Whitehall.