VAT will rise to 20% next year
VAT will rise from 17.5% to 20% from January 4 next year, Chancellor George Osborne has announced as he promised to to balance Britain's books within five years.
Among other measures announced in the emergency Budget, the Government is asking public sector workers to accept a two-year pay freeze.
Promising to deal decisively with the UK's record debts, Mr Osborne said there would be protection for the 1.7 million public servants earning less than £21,000.
Those low-paid workers will receive a flat pay-rise worth £250 in both years.
Outlining the cuts, Mr Osborne said child benefit would be frozen for three years and tax credits would be cut for families with incomes over £40,000 a year.
He said government departments whose budgets have not been ring-fenced would face spending cuts of 25%.
Armed forcing serving in Afghanistan will also see their operational allowance doubled to £4,800.
The Chancellor said the Government will accelerate the increase in the state pension age to 66.
Mr Osborne added that he would wipe £1.8 billion a year off the housing benefit bill by the end of the Parliament, capping weekly payments at £400. He also said the Government would introduce a medical assessment for Disability Living Allowance from 2013 for new and existing claimants. The total welfare shake-up will save the country £11 billion by 2014/15, he said.
Corporation tax will be cut - in line with the Conservatives' election manifesto - with the headline rate being progressively reduced over the course of the Parliament from 28p to 24p.