With so many well flagged problems facing the country attempts by the new government to strike the right balance in this emergency budget was always going to be interesting.

Our initial thoughts are as follows:

Unsurprisingly the Chancellor emphasised the scale of the budget deficit and the worries of the international capital markets. It did not make easy listening but it was refreshing to see a politician telling the truth, however uncomfortable..

Following the last G20 meeting, where surplus countries were asked to spend more and deficit countries (like us) were asked to save more, the government is aiming to reach a balanced budget by the end of this Parliament. The question was how this would be achieved?

George Osbourne’s goal is that 77% of the deficit reduction will come from reducing public spending, with 23% coming from higher taxes.

Unsurprisingly the Chancellor told us that we will not be joining the Euro during this Parliament. As Prometheus is less than convinced the Euro will be in its current form in five years time this makes more sense than ever!

Pleasingly the Chancellor has recognised the importance of maintaining reasonable capital investment, which is clearly necessary, and will support jobs in both the public and private sectors. This was reflected later in the speech when infrastructure projects round the country, such as extensions to the Manchester Metro, system were discussed

As already disclosed health and overseas aid will be ring fenced but on average other departments will have to reduce expenditure by 25%. Part of this is coming from pay and pension. As the Chancellor points out the public sector has been protected from the hardship of the private sector during the recession. Now the axe falls. There is to 2 year pay freeze across the public sector (apart from the lower paid who will have a small fixed increase), while the public sector pensions will be independently reviewed. The retirement age will also be raised to 66 years of age.

With the welfare system becoming a massive burden on the state the system is to be revised to encourage people back to work (has been tried before, will be interesting to see how it works). Welfare payments will be linked to CPI, not RPI, as this is the Bank of England target inflation rate. This will save a lot of money, although it was a bit cheeky to suggest this is fairer as it will result in smaller increases.

There will be targeted reductions in universal benefits particularly those paid to the higher earners. There will be new assessment for medical disability and housing benefits will be reviewed and reformed.

Reforming National Insurance is seen as key and will actually be reduced for the lower paid to encourage new employment. Combined with schemes to support employment outside the South East, where private sector growth has been poor, this should be a welcome shot in the arm.

Corporation Tax will be reduced by 1% per annum, from 28%, down to 24% at the end of Parliament to try and draw in international businesses. Small companies’ tax will be reduced from 22% to 20% and a number of other measures will be introduced. This will benefit growth but will reduce the tax take. Rules on depreciation tax relief will help offset this although these look like they will be phased in.

Unsurprisingly the banks are not going to benefit from the lower corporation tax rates and they will be hit. The government is working with the IMF and international partners, but from January next year there will be bank balance sheet levies in place (with apparently the French and Germans agreeing to follow a similar plan).

Overall this was pleasingly pro-business, recognising that this is the key to growth.

Now the 23% of the deficit that comes from tax changes.

From 4^th January 2011 the main rate of VAT will be raised to 20% (no surprise really). This is expected to raise an additional £13Bn per annum. Zero rated items like food and children’s clothing will remain.

For the moment there will be no increases in the duties announced in the last budget, but there will be a root and branch review of certain duties, such as fuel and alcohol reporting in the Autumn.

As expected CGT was increased; but basic rate payers will still pay 18%, but higher rate payers will pay 28% from tomorrow, although the exemption remains at £10,100. How this will be applied, with a change two and a half months into the tax year remains unclear and we await more detailed analysis.

CGT for entrepreneurs will remain at 10%, with the lifetime lifted from £2Mn to £5Mn. There will be no return of complex taper relief or indexation.

Income Tax faces reform with an increase the personal allowance by £1,000, up to £7,475, with the goal of setting the figure at £10,000 by the end of the Parliament, with the goal of supporting the lower paid. Higher rate payers however will effectively pay more as for the moment the thresholds remain frozen, so in real terms more will find themselves paying higher rate tax.

Pensioners at least will benefit, with a link to earnings being restored and a guaranteed rise of 2.5% per annum being targeted, regardless of average earnings or inflation figures (should they be under the 2.5% level).

Overall not as harsh as feared but we are sure there will be plenty more detail that comes out in the wash in the coming days