Tax break help for firms as Osborne chips away at £155bn budget deficit

Live budget coverage here from 12.20pm

Shadow Chancellor Alistair Darling warned both the Conservatives and Liberal Democrats would be going against pre-election pledges if they increase VAT – a move he suggested was "highly likely" in order to raise billions of pounds.

In his first Budget as Chancellor, Mr Osborne will seek to ease concerns about the impact of cuts on Northern areas more reliant on public sector jobs by promising tax breaks to private firms who hire new staff in regions like Yorkshire.

Business leaders in the region have welcomed the move which would exempt new companies from National Insurance contributions for a year on the first 10 staff they take on in areas outside London, the south east and east of England – which follows pledges by Prime Minister David Cameron and his deputy Nick Clegg to offer help for the North.

With the Government having spent recent weeks softening the public mood for a painful Budget package to slash the deficit, Mr Osborne is expected to announce a pay freeze in the public sector, cut child tax credits for the middle classes, increase Capital Gains Tax and announce a 3bn levy on banks. Benefits could be pegged back.

But there will also be some measures to sweeten the pill, including a one-year council tax freeze, a significant increase in the level of which people start paying income tax, a key Liberal Democrat demand, and measures to overturn Labour's National Insurance increase for employers.

In contrast to negotiations over Budgets often continuing until the last minute under Labour, the package is understood to have been signed off on Friday.

Speaking on the eve of the Budget, Mr Darling claimed the Government's desire to cut the deficit faster risked "derailing" the recovery, and said Labour would be watching out for how many pre-election promises the two parties have broken.

He said he would be "astonished" if VAT – which he singled out as a "money spinning" tax – is not increased but stressed that both coalition parties insisted they had no plans to raise it during the election campaign.

Plans to encourage the private sector to prosper in the region – as thousands of public sector jobs are likely to be axed over – are expected to cost around 900m.

Nick Pontone, policy director at Yorkshire and Humber Chambers of Commerce, said: "Making it easier to start a business and reducing the cost of taking on staff is a welcome signal that the Government is serious about supporting Yorkshire's entrepreneurs."

Only hours ahead of the budget, data from the Asda Income Tracker showed the average UK family had 6 a week less disposable income this month than a year earlier – 210 a week against 216.