George Osborne has taken the axe to the welfare budget, slashing benefit payments by £7 billion, as he sought to put the nation's finances back on a sound footing.
The Chancellor set out plans to cut government spending by a massive £81 billion over the next four years, in a settlement he described as "tough but fair".
Announcing details of the Comprehensive Spending Review in the House of Commons, he said that the measures had been necessary to pull the country back from the "brink of bankruptcy".
He was accused by Labour of taking a "reckless gamble" with the economic recovery with a cuts package which would see the poorest in society shouldering a greater burden than the richest.
However his measures have won the backing of the Fitch ratings agency, which said that it should help the UK retain its prized triple-A credit rating.
In other key announcements, Mr Osborne said he was bringing forward the date at which the state pension age would rise to 66 for both men and women, saving £5 billion a year.
He confirmed that 490,000 public sector jobs were expected to be lost over the next four years as most Whitehall departments were forced to cut their budgets by around a fifth in real terms. The police, prisons, universities and local councils, will all be hit hard as the cuts bite.
But the centrepiece of his plan was a series of benefit cuts totalling more than £7 billion on top of the £11 billion already announced in the emergency Budget in June - representing a hefty increase on the £4 billion previously predicted.
Among the big losers are the Home Office which will lose 24% over four years - with spending on policing falling by 16% - while the Ministry of Justice is to axe 3,000 prison places as its budget is cut by 23%. The Foreign Office faces a similar 24% cut, with a sharp reduction in London-based diplomatic staff.
Shadow chancellor Alan Johnson said that the Government's "rush" to cut the deficit was a "recipe for unemployment".