Chancellor George Osborne increased VAT from 17.5% to 20% and cut welfare spending as he moved "decisively" to tackle Britain's record debts, according to BBC.
Child benefit and public sector pay will be frozen and 25% cut from public service spending - but alcohol, tobacco and fuel will escape tax hikes.
Unveiling his first Budget to MPs, Mr. Osborne, Finance minister of Great Britain said "tough but fair" action on debt was "unavoidable".
The VAT increase, which Mr. Osborne said would raise £13bn a year, is to come into effect in January.
From January 2011, the government will introduce a bank levy, which will apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks. Mr. Osborne said the move would raise £2bn a year once it was fully in place.

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