Chancellor of the Exchequer George Osborne delivered his first budget last week, outlining his plans to “balance the books” by 2016. Tax increases and benefit cuts are tough but “unavoidable,” said Osborne.

Britian’s coalition government of Conservatives and Liberal Democrats will raise the main value-added tax rate from 17.5 to 20 percent next year. Taxes on capital gains will also go up dramatically to 28 percent. Corporate tax rates will go down instead to stimulate the economic recovery.

In order to prevent low-income families from being hit especially hard, the personal income tax allowance will also rise starting in April 2011, by £1,000 to £7,475. Yet all Britons will feel the pain of entitlement cuts. Tax credits will be reduced for families earning over £40,000 next year; child benefits will be frozen for three years to come; and the retirement age will go up to 66 years of age.

In a post at The Blue Blog, Prime Minister David Cameron defended the measures, admitting that they were tough but necessary. “Never forget — Labour left us with one of the worst economic inheritances imaginable,” he writes. “They racked up one of the biggest budget deficits in Europe — with the government borrowing one pound for every four it spends — and they doubled the national debt.”

Cameron points at Greece to note that doing nothing is not an option. “Greece stands as an example of what happens to countries that don’t deal with their debts,” he believes.

According to Cameron, there are three principles underlining the coalition government’s emergency budget. “First, responsibility.” That is restoring sense and sanity to public finances by reining in government spending. “Second, freedom.” Britain can’t prosper unless it remains welcome to international trade and enterprise, “so this budget sends out a signal to the world that Britain is back open for business.”

Lastly, Cameron mentions “fairness,” which means asking a little more from the people who are best off. “At the same time, we have also done everything we can to protect the least well-off.” He reiterates his promise, for instance, not to curtail Britain’s most pervasive of welfare programs, the National Health Service.

The prime minister expects the budget to stir debate and cause his government to lose popularity. Yet it is the right thing to do, he notes — “for the health of our economy, for the poorest in our society, for the future of our country.”