George Osborne's blitz on spending wins backing of City

The Chancellor was applauded for his plan to slice borrowing, the deficit and the underlying structural deficit far more dramatically than the Labour Government had planned.

Gilts benefited from the news as Osborne took a more aggressive chop to borrowing than the markets expected.

By the 2014/15 tax year, Osborne pledged that:

Borrowing will fall to nearly half of the previous forecast of £71 billion to £37 billion by 2014/15, then dropping to £20 billion the following year.

The deficit, measured as a percentage of GDP, would fall from 10.1% this year to 1.1% in 2015/16.

Economic growth will be weaker than predicted earlier this year and next under the previous administration's plans as the impact of today's cuts and tax rises bites in.

However, it will be faster than previously thought in 2013 and 2014. This year's growth will be 1.2%, then 2.3% — both 0.1% weaker than previously thought. It will then match the previous forecasts of 2.8% before beating those estimates by 0.1% in the following two years, with growth of 2.9% and 2.7%.

Osborne's prediction that he could slash borrowing as a percentage of GDP was expected to offer some real comfort to the credit rating agencies whose pronouncements on countries' financial strength set the bar for how high their debt repayment rates should be.

Fitch Ratings has threatened that if it does not drop to 3% or lower in the next five years, the UK will lose its coveted AAA rating. Under Osborne's proposals, that figure will be easily surpassed.

Dr Neil Blake, economist at the respected ITEM Club thinktank, said: "The Chancellor has announced some ambitious Budget cuts but has tried to soften the blow on the impact to the economy by delaying most of the cuts and tax increases until next year. It won't be until well into 2011 that we find out if this has put the economy into a double-dip recession or not."

However, many academic economists still feel the cuts go way too far and threaten to push the country's fragile recovery into recession by destroying jobs, taking spending power away from public-sector workers and killing off public-sector projects that would have provided much-needed work for private-sector contractors.

VAT rise could boost retail sales'

Raising VAT to 20% may not hurt the retail trade as much as opposition politicians fear. Some retailers say it will actually boost sales ahead of the change.

Richard Lowe at Barclays Corporate said: "Bringing in the change on January 4 will mean crucial Christmas trading period is protected; it could also stimulate sales as shoppers bring forward big-ticket purchases."

Construction firms in spending lift

Construction firms and support services groups were celebrating the Chancellor's decision to stick with the current level of capital spending in his emergency Budget.

Osborne ruled out cutting off funding from existing projects, saying: "New capital spending on infrastructure will not stop. We need it to provide new buildings and transport links."

Tote, Student Loans and Nats for sale

Plansto sell off government betting agency the Tote, the Student Loans Book and National Air Traffic Services were unveiled.

The previous administration had toyed with a sale of the assets. The Tote could fetch £300 million, while the other two are harder to value. The student loan book is expected to soar to £50 billion in the next 10 years.

Small firms are hit by allowances cuts

Britain's manufacturing and agricultural industries were hit by the move to cut the capital allowances for plant and machinery from 20% to 18% a year.

Osborne also halved the amount of expenditure on capital equipment that firms can offset against profits from £50,000 to £25,000 a year, in a move that is likely to most impact small and medium-sized businesses.

Tax relief for entrepreneurs

There was a silver lining for businesses facing a hike in capital gains tax in the emergency Budget today, as the Chancellor extended the 10% rate of entrepreneurs' tax relief from £2 million to £5 million over a lifetime. The move means that the vast majority of British trading firms will be able to pay CGT at 10% on their first £5 million of profit, or on £10 million if the business is joint owned.