Harriet Harman: Lib Dems have sacrificed all they stood for

Liberal Democrat ministers were accused of selling their principles for the sake of their ministerial cars, in a withering attack by the Labour leader, Harriet Harman. Giving the Opposition's reply to the Budget speech, Ms Harman seemed angrier at the Liberal Democrats sitting in unhappy silence behind George Osborne than at the Chancellor himself.

A month ago, when they were running for election, the Liberal Democrats campaigned against any increase in VAT. This month, as members of the coalition government, their leaders are signed up to Mr Osborne's decision to raise VAT from 17.5 per cent to 20 per cent.

"How could they support everything they fought against; how could they let down everyone who voted for them; how could they let the Tories exploit them?" Ms Harman demanded, as she delivered the Opposition reply to the Budget.

"The Liberal Democrat leaders have sacrificed everything they ever stood for to ride in ministerial cars and ride on the coat tails of the Tory government."

She added that, while 22 Liberal Democrats had gained jobs as government ministers, many thousands outside Parliament faced losing their jobs because of the measures announced.

"This is a Tory Budget that will throw people out of work, that will hold back economic growth and will harm vital public services," she said.

The hike in VAT caused obvious discomfort among Liberal Democrats, because it so directly contradicted what they had said in the election. Sir Menzies Campbell, the former Liberal Democrat leader, described it as "difficult", and one Liberal Democrat MP, Bob Russell, indicated that he might vote against it when the finance bill is put before the Commons. "Less than 50 days ago, I was seeking re-election opposed to a raise in the level of VAT, so I am not at all happy," he told the BBC. "I need to discuss with colleagues how it is we have got into this situation. VAT is a tax which the low-paid disproportionately pay more."

Small businesses also warned yesterday that the VAT hike could badly affect trade. Stephen Robertson, director general of the British Retail Consortium, said: "It'll hit jobs, consumer spending, the pace of recovery, and add to inflation, but we accept the Government has no easy options.

There were angry reactions also to the planned cuts in welfare spending and the threat to public-sector jobs yesterday from Labour politicians and union leaders. Ed Balls, a contender for the Labour Party leadership, described it as a "Budget from hell" which would push up the numbers of unemployed by 100,000 a year. He added: "The combination of a sharp and unfair rise in VAT, the callous freezing of child benefit and the deepest cuts our public services have ever seen will be a hammer-blow to lower- and middle-income families."

Harriet Harman's husband, Jack Dromey, the newly elected Labour MP for Birmingham Erdington, said: "This cruel Budget cuts deep, hitting the least well-off hardest and harming economic recovery. It will be Birmingham that suffers, not the leafy shires."

The left-wing Labour MP John McDonnell described the Budget as "a redistribution of wealth from the poorest in our society to big business".

The TUC's general secretary, Brendan Barber, said: "This Budget was economically dangerous and socially divisive. The one thing we can now say is that we are very definitely not all in this together. Those on middle and low incomes have done worse than expected, and the rich have been let off much of what they feared."

Martin Freedman, head of the Association of Teachers and Lecturers, warned: "This will inevitably include fairly savage staffing cuts."

Dame Margaret Eaton, chairman of the Local Government Association, called it "a very tough Budget that will have far-reaching effects".

She added: "Councils provide vital frontline services upon which millions of people rely. Ministers need to recognise that council services such as adult social care and safeguarding children are as important to residents as services such as education and health."

Nick Clegg's letter to Liberal Democrat Members

Labour left our country with a mountain of debt. Every minute that goes by the Government spends a staggering £80,000 on interest – that's over £800 million a week. If we don't take action now, the markets will force us into even more drastic measures as they have in Greece and Spain.

Without action on the deficit, we will carry on racking up unaffordable debts our children will have to pay off. We will carry on spending more money on debt interest than we do on our schools. And we will undermine the economic growth needed to create jobs and opportunities for all of us. There is nothing fair, liberal or progressive about any of that.

Of course, the Labour Party will say that these decisions are not justified. They will say the Budget creates risks for our economy and that Liberal Democrats have sold out to go along with Conservative cuts. They are wrong.

Every time you hear Labour say that, ask them why they covered up the details of the £44bn of cuts they themselves had planned. Ask them why they racked up so much debt that we could end up spending £70bn a year just on debt interest.

And ask them why they created this fiscal bombshell in the first place by refusing to take action against the reckless banks even when Vince Cable warned of the risks they were taking.

Until Labour accepts the blame for the mess we are in and comes up with a plan for getting us out, they cannot be taken seriously.

We have always argued that cuts would be necessary, but the timing should be based on economic circumstances, not political dogma. The economic situation today means that time has come.

A lot has changed even in the last few months. The crisis in the eurozone and the problems in Greece and Spain have put huge pressure on us. The new Office for Budget Responsibility has shown that the structural deficit is bigger than we thought. And, in government, we have discovered billions of pounds of unfunded spending promises Labour had made, cynically raising people's hopes when they knew the coffers were bare.

So cuts must come. We have taken the difficult decisions with care, and with fairness at their heart. You will see the stamp of our Liberal Democrat values in [the] Budget. But nonetheless, 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.

Sorting out Labour's mess will be difficult but it is the right thing to do.