Today’s Budget is the predicted tough package of measures – raising taxes and cutting spending to address the huge deficit that the Coalition Government inherited from Labour. It is a budget which will set the tone of the debate until the next General Election. Its toughness will make it controversial, but my reaction is that it has got the big calls correct – and that it is far better for the noticeable Lib Dem input, than it would have been if had been a pure Tory affair. For me the big issues are:

1) How fast to cut the Deficit? This budget sets out a clear path to effectively eliminate the budget deficit as an issue by 2014/5. This is no mean feat as currently for every £4 the government spends, £1 is borrowed, which anyone can understand is unsustainable. Those who say we should cut more slowly argue that the speed of the cuts threatens to pull the economy back into recession. The problem with this theory is twofold. First if you think, as I do, that it is vital to boost spending in recessions to stimulate recovery, you have to accept that as the economy starts to recover, as it is now doing, you need to cut back. The second is that a big chunk of our deficit is structural (we are fundamentally living beyond our means). If that isnt addressed, the international financial markets will demand higher and higher interest rates for our debt as it grows and grows. This will make mortages and business investment more and more expensive, negating any benefit from the extra spending.

2) Fairness: The brunt of the deficit reduction measures is clearly borne by the better off. Several Lib Dem measures protect those on low incomes. The basic income tax allowance is raised by £1,000 a year, lifting nearly 900,000 of the lowest earners from paying tax altogether, and benefiting 23 million low and middle income earners by £190 a year. Meanwhile Capital Gains Tax is raised from 18% to 28% for high earners to help pay for this. An extra £2bn is given to the Child Element of tax credits, which should prevent a rise in child poverty and finally the earnings link is restored to pensions – first broken by the last Tory Government and shamefully left unmended throughout the last Labour Government. In fact it is better than that as pension will rise by the highest of 2.5%, earnings or inflation, an important extra guarantee for the future.

The Environment: While there are some climate change sceptics in the Tory Party, Lib Dem influence has ensured that the Coalition Government sees climate change as a huge threat and is pledged to be the greenest government ever. In particular the climate change levy will be reformed to provide bigger incentives to invest in low carbon technology, a Green Investment Bank will be created and further incentives will be given to households to help them invest in energy efficiency measures at home.

The Office of Budget Responsibility says that by 2015 unemployment will be lower as a result of the measures announced today – yes there will be pain in the short term, but the poorest are protected, investment in the green economy will grow and by dealing with the budget deficit, we are being fair to future generations. It is, in short, the Budget we needed.