Chancellor George Osborne promised a "tough but fair" emergency Budget today which would set Britain on the path to balance its books within five years.
In a statement after briefing Cabinet colleagues, Mr Osborne said the Budget aimed to protect children and pensioners and ensure that the richest bear the largest share of the burden.
He said the measures being unveiled later today in the House of Commons would encourage enterprise and job creation.
Prime Minister David Cameron's official spokesman said the Budget would see a "significant acceleration" in reining in Britain's record £155 billion deficit, compared with the plans of the previous Labour administration.
In his statement, Mr Osborne said: "My Budget is tough but it is fair.
"This is an unavoidable Budget because of the mess we have to clear up. So the coalition Government will take responsibility for balancing Britain's books within five years.
"We are going to do this fairly, protecting children and pensioners and ensuring the richest contribute the most.
"And it means getting enterprise going, because it is business, not Government, that will create the jobs of the future."
Presenting his Budget to Cabinet at 10 Downing Street this morning, Mr Osborne told colleagues that his two main aims were to deal with the deficit and the debt problem and to build a platform for long-term recovery.
He described it as a Budget for the full Parliament, which would end uncertainty over Britain's future by being clear about what the Government will do to tackle the deficit.
Mr Osborne said he would set out the terms of his own fiscal mandate, which will determine the course of policy on taxation and spending for the course of the Parliament.
He highlighted the fact that this would be the first Budget to include independent economic forecasts drawn up by the Office for Budget Responsibility.
The OBR will also have a remit to assess the probability of the Government meeting its targets as a result of measures announced.
The Budget was completed earlier than usual and subjected to detailed discussion in Cabinet last week as well as in a meeting with the Prime Minister and Deputy Prime Minister Nick Clegg.
The Budget document - known as the Red Book - will be around one-third the size of those produced under Labour chancellors Alistair Darling and Gordon Brown, as it will concentrate on measures announced today, rather than rehearsing existing policy, said Downing Street.
Mr Osborne's first Budget is expected to involve the toughest package of tax increases and spending cuts in a generation.
The Budget will set the "overall envelope" for public spending over the next few years, with the individual allocations for each Government department to be announced in the spending review in the autumn.
Among the main measures, there is intense speculation that Mr Osborne will raise the basic rate of VAT from 17.5% - possibly taking it as high as 20% - while benefits are expected to be hit, particularly universal benefits which go to the better-off.
And the Chancellor is expected to announce a £1,000 increase in personal tax allowances to £7,475 - which will mean 880,000 of the lowest paid will no longer pay income tax.
The measure will be seen as a step towards fulfilling a key part of the coalition agreement between Conservatives and Liberal Democrats following last month's inconclusive General Election.
The agreement enshrined the Lib Dem campaign promise to lift those earning less than £10,000 out of income tax as a "longer-term policy objective" of the coalition Government.
The Treasury has already confirmed that it will raise the rate of capital gains tax on non-business assets - possibly to 50%, putting it on a par with the top rate of income tax.
The move was another key Lib Dem demand during coalition negotiations, when they argued that the current system encouraged massive income tax evasion. However it has angered many Tories who say it will hit the middle classes.
Mr Osborne will press ahead with a Tory manifesto commitment to overhaul the system of corporation tax, cutting the headline rate - although it is not clear whether he will be able to get it all the way down from 28p to 25p, as the Conservatives promised at the election.
He is also expected to announce that he is scrapping Labour's planned increase in National Insurance contributions for employers - another important plank of the coalition agreement.
Mr Osborne is also expected to announce a levy on the banks, in the wake of the taxpayer-funded bailout, which could bring in between £1 billion and £3 billion a year for the Exchequer.
He has, however, refused to be drawn on whether he intends to extend the current one-year public sector pay freeze on staff earning more than £18,000 a year.
In a message last night to Liberal Democrat supporters, Mr Clegg made clear that his party was fully signed up to the coalition's economic strategy.
He rejected accusations that he had "sold out" to the Conservatives, insisting that the Budget would bear "the stamp of our Liberal Democrat values".
"It will be controversial. This is one of the hardest things we will ever have to do but, I assure you, the alternative is worse: rising debts, higher interest rates, less growth and fewer opportunities," he said.
The Government's approach has been broadly welcomed by business leaders who urged him to concentrate on cutting spending rather than increasing taxes.
However, shadow chancellor Alistair Darling issued a fresh warning that moving too swiftly to cut the deficit risked derailing the "fragile" economic recovery.
He said the situation was even more precarious now than it was when he presented his final Budget last March.
"Things have shifted decisively in the wrong direction since that time," he said.
"We have to be very cautious about the rate at which money is taken out of the British economy. If we don't get growth then we will not get the deficit down."
The CBI said that, for every £1 Mr Osborne announced in tax increases, he should cut Government spending by £4.
It called for a "radical re-engineering" of public services - to deliver more with less - so that spending on capital infrastructure could be restored as soon as possible.
"This needs to be a bold and ambitious Budget, with a credible pathway for restoring sound public finances and a convincing narrative for growth," said CBI deputy director-general John Cridland.
"A radical re-engineering of public services is a must if damaging tax rises are to be avoided. Only an effective cost reduction strategy can safeguard future growth."
But Dave Prentis, general secretary of the Unison union, told BBC Breakfast: "When you talk about everybody feeling the pain, it doesn't look like that.
"When we talk about a small benefit in taxation for the low- paid, if they are going to lose their jobs - and most public service workers are low-paid - if their houses are going to be repossessed, this is irrelevant to them.
"Most public service workers, people who provide our essential services, teaching assistants, low-paid people, they are worried about their jobs and that consumes everything."