Budget 2013: Osborne defends his 'Drown Your Sorrows' Budget by saying things could be worse

Chancellor halves growth forecasts, pushes back debt reduction targets, and avoids having to announce an increased deficit only by rushing through last-minute spending cuts. But he has reduced the price of beer

Chancellor George Osborne defended his Budget today, saying the Government had to tackle the nation's economic problems, which "could be a lot worse".

Mr Osborne, who promised hope for an "aspiration nation" in his fourth Budget to the Commons yesterday, told ITV1's Daybreak that he "wanted to be straight with the nation about the problems we face".

Yesterday he masked an even more gloomy forecast for the economy and deeper spending cuts with populist measures to reduce the duty on beer and petrol and offer help for home-buyers in his Budget today.

The Chancellor rejected calls for a Plan B despite further evidence that his strategy is hurting but not working. The independent Office for Budget Responsibility (OBR) halved its forecast only three months ago that the economy would grow by 1.2 per cent this year to 0.6 per cent and said deficit reduction had “stalled”.

Mr Osborne admitted he would achieve his debt target two years late in 2017-18. He conceded the recovery was “taking longer than anyone hoped”, saying he would “level with people about the difficult economic conditions we still face.” He insisted his “budget for our aspiration nation” would boost economic growth and help families struggling with the cost of living.

The Chancellor's allies said he had “played a bad hand well” after deliberately trailing a “boring Budget” which turned out to include headline-grabbing initiatives such as:

* cutting the price of beer by 1p a pint from Sunday

* scrapping a planned 3p-a-litre rise in fuel duty due in September

* taking 2.7m people out of income tax by raising the threshold to £10,000 in April next year, 12 months earlier than planned

* cutting £2,000 off the national insurance bill of every company, exempting 450,000 small firms altogether

* providing £3.5bn of “help to buy” government loans to meet 20 per cent of the cost of buying a new-build property

* guaranteeing 20 per cent of a mortgage on any home, to support £130bn of lending

* a £3bn-a-year boost to infrastructure projects from 2015-16.

The bad new measures needed to fund the giveaways included raising the planned spending cuts in 2015-16 from £10bn to £11.5bn. A 1 per cent cap on public sector pay rises will be extended for another year to save £1bn. Other savings will be announced in June. Treasury sources said further welfare cuts are not expected after the Liberal Democrats opposed them. But Mr Osborne will bring in a new system to cap fast-growing items of spending, including state benefits, which are currently open-ended and unaffected by his austerity measures. At present, only about half of all public spending is subject to strict controls.

Labour accused the Chancellor of ordering ministers to stop their departments spending in the final few months of the current financial year in a desperate attempt to avoid an embarrassing year-on-year rise in borrowing. He escaped that by the skin of his teeth: borrowing will be £121bn in 2011-12 to £120.9bn this year. Without one-off measures being included in the figures, it would have risen to £123.2bn.

Ed Balls, the shadow Chancellor, accused the Government of borrowing £245bn more over the five-year parliament than it planned in 2010. He dismissed the eye-catching measures as “tinkering” when Mr Osborne should have changed course. Mr Balls focused Labour's attack on living standards, claiming that a family with two children and one earner on £20,000 a year would be £381 a year worse off in 2013-14 and £600 worse off the following year.

Mr Osborne steered a middle course as he disappointed Conservative right-wingers demanding radical tax cuts to kickstart the economy and Liberal Democrats and Labour politicians urging a rise in borrowing to fund an immediate boost to building projects.

David Davis, the former shadow Home Secretary, was among the Tory MPs who said the Budget should have gone further in cutting business taxes and warned Britain faced “being stuck with low growth for decades.”

Nick Clegg trumpeted the Lib Dems' victory in seeing their signature policy of a £10,000 tax threshold being delivered. But Lib Dem activists were angry that the Chancellor had dismissed calls by Vince Cable, the Business Secretary, to “borrow for growth”. Writing on The Independent's website, Gareth Epps, co-chair of the Social Liberal Forum, said it was “a Budget that gets a lot of little things right, but the big things wrong. Whereas the balance-sheet approach is finally acknowledged to have flopped by mistakenly slashing capital investment, demand remains suppressed and growth restricted.” A survey of Lib Dem members by the Lib Dem Voice website found that only 26 per cent support Mr Osborne's Plan A.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, said the Chancellor had put off more of the austerity measures needed until after the next general election. “Mr Osborne has again responded to a weakening economic outlook, a worse situation for the public finances, by borrowing a lot more over this parliament, pushing more of the deficit reduction into 2016-17, 2017-18 and beyond,” he said.

Mr Emmerson added: “The hardest hit seem to be those at the very top. The next hardest hit are working age families towards the bottom of the income distribution. Relatively less hard hit are those in the upper middle of the income distribution and, in particular, pensioners who are protected from much of the austerity.”