Chancellor George Osborne delivered a VAT hike to 20 per cent and slashed welfare spending as he moved “decisively” to tackle Britain’s record debts.

Presenting his first Budget to a packed House of Commons, he promised “tough but fair” action to wipe out the structural deficit within five years.

And he laid the blame for the pain ahead at the door of the former Labour government.

However his plans were denounced as “reckless” by acting Labour leader Harriet Harman, who warned those least able to pay would be the hardest hit. Outlining the cuts, Mr Osborne announced the public sector pay freeze would be extended for two years for staff on £21,000 or more.

Child benefit is to be frozen for three years while tax credits will be cut for families with incomes over £40,000 a year and the Government is to move quicker towards raising the state pension age to 66.

Housing benefit payments are to be capped and disability living allowance claimants are to face a new medical assessment.

But, Robert Stafford of Bolton chartered accountants, Stafford and Co, in Gaskell Street, hit out at George Osborne’s Budget.

He said: “As for the increase in VAT to 20 per cent, aside from the administrative burden, I do not see how this will help reduce the deficit in the long term.

“Unfortunately it will be the small companies that contribute significantly to the economy which will suffer the most, and they are the ones who are in need of the most help at this time.

“I think the country — and small businesses in particular — will be in for a tough year.

David Ost, North West Director of EEF, the manufacturers’ organisation, said: “In recent weeks, manufacturers had been encouraged by strong commitments from the Prime Minister and the Chancellor on the role of manufacturing in a better balanced economy.

“They will now be left wondering where the necessary growth and investment will come from, given the cuts to investment allowances and capital budgets.”

A spokesman for RSM Tenon, which has an office in Bolton, said: “On any analysis the budget which we have just heard was extraordinary. It was not just the scale of the cuts and tax increases, but the bold attempt to set a five-year agenda for a complete reshaping of the tax system.

“For years we have been beset by chronic short-termism in tax policy so we have to applaud an attempt to build a long-term strategic framework for taxation.”

In the Budget, Mr Osborne said the welfare shake-up will save the country £11 billion by 2014/15.

He also warned that Government departments whose budgets have not been ring-fenced would be faced with cuts of 25 per cent in the autumn spending review.

But he confirmed plans to raise personal allowances for basic rate tax payers by £1,000 to £7,475 from next April, taking 880,000 of the lowest paid out of income tax altogether.