Chancellor George Osborne is due to set out what is expected be the toughest package of tax increases and spending cuts in a generation as he delivers his first Budget.

Six weeks after the coalition Government took office, he will present an "emergency" plan to tackle Britain's record £155 billion deficit and show that the country can live within its means.

Mr Osborne - the youngest Chancellor for more than a century - has said he will "significantly accelerate" measures to reduce the level of debt in order to rebuild confidence in the UK's battered economy.

In a message on Monday night to Liberal Democrat supporters, Deputy Prime Minister Nick Clegg made clear that his party was fully signed up to the coalition's economic strategy.

He rejected accusations that he had "sold out" to the Conservatives, insisting that the Budget would bear "the stamp of our Liberal Democrat values".

"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," he said.

Mr Clegg will be able to point to an expected £1,000 increase in personal tax allowances to £7,475 - which will mean 880,000 of the lowest paid will no longer pay income tax. The Lib Dems' long-term aim of taking anyone earning less than £10,000-a-year out of tax was a key plank of the coalition agreement.

Mr Osborne has said that an increase in tax thresholds will form part of a "tough but fair" Budget package.

The Government's approach has been broadly welcomed by business leaders who urged him to concentrate on cutting spending rather than increasing taxes. However shadow chancellor Alistair Darling issued a fresh warning that moving too swiftly to cut the deficit risked derailing the "fragile" economic recovery.

Among the main measures in the Budget, there is intense speculation that Mr Osborne will raise the basic rate of VAT from 17.5% - possibly taking it as high as 20% - while benefits are expected to be hit, particularly universal benefits which go to the better off. The Treasury has already confirmed that it will raise the rate of capital gains tax on non-business assets - possibly to 50%, putting it on a par with the top rate of income tax.