Chancellor’s difficult Budget has a few sweeteners

George Osborne announced the measure amid gloomy growth forecasts which he blamed on a 'dangerous cocktail' of risks from the global economy.

The independent Office for Budget Responsibility upgraded borrowing forecasts by a total of £56bn over the coming five years, forcing the chancellor to announce an additional £3.5bn in spending cuts to keep alive his hope of hitting his target of getting the nation's books into surplus by 2019.

The chancellor was forced to admit that government debt would rise as a proportion of GDP this year – breaking a key rule he had set himself – and growth forecasts have been sharply revised down.

But he sought to shore up support among Conservative MPs ahead of an expected leadership battle with a headline-grabbing middle class tax cut and a continued freeze on fuel duty.

Announcing new devolution deals overseen by elected mayors in East Anglia, the west of England and Greater Lincolnshire, he told MPs: North, South, East and West – the devolution revolution is taking hold.'

There were also boosts for business, with 600,000 small companies taken out of rates altogether and a cut in corporation tax from 20pc to 17pc by 2020. And Mr Osborne sought populist applause by freezing duties on beer, spirits and most ciders.

A new Lifetime Isa will help under-40s save for their first homes, with a 25pc bonus from the government on up to £4,000 of savings a year.

But Labour leader Jeremy Corbyn responded to Mr Osborne's Budget by telling MPs it was 'the culmination of six years of his failures' and had 'unfairness at its core'.

The Labour leader said the financial proposals failed on productivity, investment and in tackling inequality.

He said the chancellor was offering tax cuts to the very wealthy while disabled people lost more than £1bn.

'Today he has announced growth is revised down last year, this year, every year forecast. Business investment revised down, Government investment revised down. It's a very good thing that the chancellor is blaming the last government – he was the chancellor in the last government.

'This Budget has unfairness at its very core, paid for by those who can least afford it.

'He could not have made his priorities clearer – while half a million people with disabilities are losing over £1bn in personal independence payments, corporation tax is being cut and billions being handed out in tax cuts to the very wealthy.'

The respected Institute for Fiscal Studies think tank said that, overall, the budget delivered 'measures that will increase tax revenues and cut spending'.

IFS programme director Gemma Tetlow told BBC Radio 4's World at One: 'The big picture is weaker economic performance meaning that the underlying forecast for borrowing increases really quite significantly'.

The independent Office for Budget Responsibility said that signs of a pick-up in productivity growth which allowed the chancellor to deliver a sunny Autumn Statement in November had turned out to be a 'false dawn', as it downgraded its growth estimates for this year from 2.4pc to 2pc and next year from 2.4pc to 2.2pc

Mr Osborne insisted the UK was 'well placed' to handle the worldwide slowdown and said that the government would 'act now so we don't pay later'.

'In this Budget we choose the long term,' said the chancellor.

'We choose to put the next generation first. Sound public finances to deliver security, lower taxes on business and enterprise to create jobs, reform to improve schools, investment to build homes and infrastructure – because we know that's the only way to deliver real opportunity and social mobility,' he said.

There were cheers from Tory benches as Mr Osborne announced he would be taking more than half a million people on incomes over £42,000-a-year out of the higher rate 40p rate of income tax.

They liked it too when he revealed he had resisted the temptation to take advantage of falling petrol prices to put up fuel duty as well as his cuts to corporation tax, business rates and capital gains tax.

Mr Osborne also made the most of reductions to levies on the North Sea oil and gas industry to bash the SNP, saying they would have not been 'remotely affordable' if Scotland had voted to break away from the UK.

CBI director general Carolyn Fairbairn said: 'After a year of surprises, this was a stable Budget for business facing global stormy waters.

'The chancellor has listened to our concerns about the mounting burden on firms and chosen to back business to grow the economy out of the deficit.' But Len McCluskey, general secretary of the Unite union, said Mr Osborne had been exposed as a 'one-trick chancellor – and his one trick is to cut because he refuses to act to grow our economy'.

Shadow chancellor John McDonnell said the chancellor's economic credibility was 'completely shot through' because he had been unable to meet his own targets.

Mr McDonnell said it was 'morally reprehensible' that of total savings of almost £4.2bn due by 2020/21, £1.3bn would come from the cuts to personal independence payments for disabled people. Labour would restore the 20p corporation tax rate and ditch Mr Osborne's surplus target, he said.

See today's 8-page Budget pull-out

Devolution – Pages 8&9