Public sector workers will lose their right to automatic pay rises and jobless people will have to wait seven days to claim benefits, after Chancellor George Osborne announced plans to slice a further £11.5 billion off Government spending.
In a Spending Review for 2015/16 which extended the age of austerity beyond the next general election, Mr Osborne also stripped expat pensioners in warm countries of the right to claim winter fuel payments, and gave further details of a new Welfare Cap which will "put a limit on the nation's credit card" from 2015. But he had a £100 boost for council tax payers, offering funding to allow local authorities to extend the freeze on bills for a further two years.
And he said that £300 billion of investment over the next six years in capital projects would boost sustainable growth and help "turn Britain around".
Chief Secretary to the Treasury Danny Alexander will unveil £100 billion worth of specific infrastructure plans, expected to include new roads, railways, science facilities and schools, in a statement to the Commons on Thursday.
In a highly political statement to the House of Commons, Mr Osborne claimed that the UK was "moving out of intensive care, and from rescue to recovery" and challenged Labour to say whether it will accept new restrictions on welfare spending. But his announcements put him on collision course with the unions, with TUC general secretary Frances O'Grady denouncing his package as "a toxic mix of bad economics, nasty politics and dishonest presentation".
And Labour described his statement as a "con", pointing out that there was no new money for infrastructure, while the £50 billion capital spending announced for 2015/16 amounted to a 1.7% cut in real terms. "They have done nothing - zero," said shadow chancellor Ed Balls. "It's a complete capital spending con. There is nothing here."
Mr Balls said the new round of cuts represented a "comprehensive failure" of Mr Osborne's economic strategy, telling MPs: "This out-of-touch Chancellor has failed on living standards, growth and the deficit and families and businesses are paying the price for his failure."
But Mr Osborne insisted his measures, which only spared schools, the NHS, overseas aid and the intelligence services, were based on the principles of reform, growth and fairness, and would ensure that the wealthiest fifth of society bear the biggest burden.
Total state spending in 2015/16 will be £745 billion - £120 billion lower than if it had continued to rise after 2010 at the rates seen in previous years - he said. He told MPs: "The decisions we take today are not easy, and these are difficult times. But with this statement we make more progress towards an economy that prospers, a state we can afford, a deficit coming down and Britain on the rise."
Public sector pay rises will be limited to an average of up to 1% for 2015-16, while the "antiquated" system of automatic progression pay - which rewards employees with an upgrade for each year of service - will be scrapped in the civil service, schools, the NHS, prisons and police, though not the armed forces.