George Osborne has launched his bid to become the next Prime Minister by surprising the country with an announcement of a new National Living Wage of £7.20 in the first Tory Budget in almost 20 years.

The Chancellor thrilled Conservative backbenchers with the pledge, which came along with others such as tax cuts for millions of workers, the scrapping inheritance tax on homes worth up to £1million and another unexpected promise - to ensure defence spending remains two per cent of national income.

But there was a sting in the tail for Scotland's half a million public sector workers who will effectively receive a pay cut with their annual wage rises capped at one per cent over the next four years.

There will also be £12 billion of welfare cuts, mainly falling on those in jobs.

The SNP and Labour accused Mr Osborne, who gave the first Budget from a Tory majority administration since November 1996, after the party's election victory in May, of 'con tricks' that left workers worse off.

John Swinney, the Deputy First Minister and Finance Secretary said: "This Budget is a series of con tricks to try and hide the fact that individual households will now bear the brunt of austerity cuts.

"I support a meaningful living wage paid for by business - one that pays what people need to live, not one that fails to compensate for cuts to valuable tax credits."

Ian Murray, Labour's shadow Scottish Secretary, said Mr Osborne's measures were bad news for the working families, the vulnerable and the young, with the Chancellor "giving with one hand and taking away with the other."

There were also fears that the new compulsory living wage could undermine the higher voluntary rate of £7.85 currently paid by many employers.

First Minister Nicola Sturgeon hit out at the Chancellor's new policy saying that it was not the living wage, which she said was £7.85, but instead an increase in the minimum wage.

The £7.20 rate, which will be paid to more than 100,000 Scots, will come in next year, with an ambition to rise to £9 by 2020.

Mr Osborne also announced that from next year workers would not start to pay income tax until they earned £11,000, up from £10,600.

The rise will take thousands of Scots out of paying the tax altogether.

To cheers from Tory MPs he also announced a rise in the higher 40p tax rate threshold from £42,380 to £43,000, a move that will help 130,000 across the UK.

Other major announcements included:

A real terms cut in working age benefits for four years - although maternity pay will be exempt

Tax credits support limited to just two children

A cut in the benefits cap from £23,000 to £20,000 outside London.

Cuts to relief for buy-to-let homeowners

A new surcharge on bank profits

Slashing corporation tax rate to 18 per cent

A £5bn crackdown on tax avoidance and those 'non-domiciled' in the UK for tax reasons.

The BBC will absorb the £650m cost of providing free TV licences to the over-75s.

Motorists will also face paying on average an extra £17.50 on top of the average car insurance premium, the AA claimed, after he put up insurance premium tax by 3.5 per cent - leading to fears of more uninsured motorists on the roads.

Barnardo's Scotland was among those who warned that for many a new national living wage would not compensate for the cuts.

The charity calculated that some struggling families would lose £1,200 a year overall.

The benefits cuts will also hit women harder than men, according to analysis by the independent House of Commons Library commissioned by Labour's Yvette Cooper.

The library found 70 per cent of the almost £34 billion in welfare savings by 2020/21 will come from women.

SNP MP Roger Mullin also accused the Conservatives of forcing rape victims to justify themselves to the authorities.

The row centred on the Chancellor's controversial move to restrict tax credits to new applicants to just two children.

Exemptions would be made for rape victims, the Treasury said.

But Mr Mullin,MP for Kirkcaldy and Cowdenbeath, said: "What on earth is moral about dragging women to have to talk about the fact that they may have been raped to get some decent treatment out of benefits in this society? "

The Chancellor also told 18-to-21-year-olds they would have to 'earn or learn' and would no longer be automatically entitled to housing benefit.

The Treasury said that it could not say whether or not the average would be better or worse off after the Budget.

Sources said it was very hard to model "the ripple effect" of the new 'living wage' up the income scale.

However, some of the welfare cuts were not as severe as had been expected, with some delayed or only applied to new applicants.

Mr Osborne also delayed by a year his target to get the UK back in surplus.

He said that he wanted to avoid a "roller coaster" in public spending.

Barnardo's calculations are based on a lone parent family working full time on minimum wage with two children, who could be £23 per week worse off.

Spokesman Eddie Follan said: "Tax credit cuts could blow a £1,200 hole in some families' annual budgets, leaving them struggling to cover the cost of food, gas and electricity and childcare. Promises that this shortfall will be made up for by raising low wages are misleading, because the cuts to tax credits are so severe.

Our figures show that unless tax credits are protected, more children will be pushed into poverty."

Meanwhile, Mr Mullin claimed rape victims will be forced to justify themselves to the taxman to secure child tax credits under the Government's reforms.

He questioned the morality of the Budget move as he argued women who have been raped would not receive "decent treatment".

The Budget document notes the Department for Work and Pensions and HMRC will develop "protections" for women who "have a third child as a result of rape", the Commons was told.

The MP said: "I would appeal to the Government to, for goodness sake, you may seek savings in many other parts of welfare but don't punish children and don't force women who have gone through the trauma of rape to have to justify themselves to the taxman."

Mr Mullin earlier said he was "stunned" by remarks from Conservative backbencher Jacob Rees-Mogg that the Budget was highly moral.

He said: "It reminded me that today is the 131st anniversary to the day of the formation of the National Society for Prevention of Cruelty to Children - on the very day that this Government brings in a Budget that attacks children, tax credits for children."

Mr Osborne hailed his Budget as 'bold' and "a big Budget for a country with big ambitions".

He said that by 2020 the UK would raise more than spends.

In a bid to put extra pressure on Labour over public spending he also confirmed he would publish a new fiscal charter- to keeping debt falling as share of gross domestic product every year - and "always fix the roof when the sun is shining".

The Chancellor said that he still had to find a similar amount of cuts from government departments, to be announced in the autumn statement.

But other Whitehall departments will face a bigger hit because of the protections the Chancellor announced for the Ministry of Defence.