The Coalition Government’s first Budget faced a Liberal Democrat revolt last night over plans to slash welfare benefits and public-sector pay to get Britain out of bankruptcy.

Chancellor George Osborne is set to announce a multi-billion-pound package of swingeing public spending cuts combined with massive tax rises in a five-year war on the national deficit.

It will be the most controversial Budget since Margaret Thatcher doubled VAT weeks after she came to power in 1979 in the middle of a similar crisis.

But it threatens to cause the first major split in David Cameron and Nick Clegg’s Liberal-Conservative coalition. A group of Liberal Democrat MPs say they are prepared to join forces with Labour and oppose big cuts in State benefits.