Public sector workers, benefit claimants and ex-pat pensioners have all been hit under the Chancellor's drastic plans for extra spending cuts.
George Osborne declared Britain was "moving out of intensive care and from rescue to recovery" but warned the country had to keep on making savings.
As part of moves to save a further £11.5bn across Whitehall, public sector pay will be limited to an average of 1% for 2015/16 and automatic rises scrapped.
Welfare spending including housing benefit, tax credits, disability benefits and pensioner handouts except the state pension will be capped from April 2015.
A council tax freeze due to end next April is being extended for two years, saving around £100 per family, but local authorities face 10% cuts in resources.
And £30m-a-year will be saved by stripping the winter fuel allowance from Britons who move to live in countries warmer than the UK.
George Osborne and Danny Alexander leaving the Treasury on Wednesday
In a 50-minute statement, Mr Osborne said balancing the UK's books involved "difficult decisions", adding: "There never was an easy way to bring spending under control."
But shadow chancellor Ed Balls claimed the new cuts represented a "comprehensive failure" of the top Tory's economic strategy and were simply "more of the same".
"This out of touch Chancellor has failed on living standards, growth and the deficit and families and businesses are paying the price for his failure," he said.
Ministers for the Treasury, Cabinet Office, Justice, Environment and Communities and Local Government will have to slash another 10% from their budgets and Work and Pensions 9.5%.
Business and the Home Office face cuts of 6%, the Foreign Office 8% and Culture, Media and Sport 7% while Scotland, Wales and Northern Ireland offices will also be squeezed by 2%.
The security services were one of the biggest winners with MI5, MI6 and GCHQ seeing a 3.4% increase in their annual budget to help the fight against terrorism.
The Department of Transport has to find 9% in day-to-day savings but also emerged with the largest cash boost because its capital budget is due to rise to £9.5bn.
Mr Osborne promised there would be the largest programme of investment in roads for 50 years and in railways since the Victorian age.
The Ministry of Defence will see its budget maintained in cash terms at £24bn, which will mean a real-terms cut of 1.9%, but money for equipment will rise by 1% a year.
Its capital budget will also be held at £8.7bn, representing a real-terms reduction of 2.3%.
There will be no further reductions in troop levels, although the Chancellor confirmed the civilian workforce will be slashed.
And fines levied against banks for the Libor rate-rigging scandal will be used to fund the Armed Forces Covenant, setting out the nation's obligation to troops in perpetuity.
The Chancellor insisted his measures, which only spared schools, the NHS, overseas aid and the intelligence services, were necessary and fair.
Nurses, police officers and teachers will all be hit by the loss of progressive pay, which sees them earn more each year regardless of performance, with only the armed forces exempt.
Mr Osborne said: "Progression pay can at best be described as antiquated; at worst, it's deeply unfair to other parts of the public sector who don't get it and to the private sector who have to pay for it."
The Chancellor also revealed the Office for Budget Responsibility predicts another 144,000 working for the Government will lose their jobs by 2015/16.
There was immediate anger at the pay changes, with union chiefs claiming civil servants have been made "scapegoats" for the coalition's austerity regime.
Fresh cuts for local authorities also raised concerns, despite Mr Osborne telling MPs spending would only fall by 2% once local government changes had taken effect.
Sir Merrick Cockell, chairman of the Local Government Association, said the reductions would "stretch essential services to breaking point in many areas".
Mr Osborne defended moves to restrict winter fuel payments for ex-pats, declaring he was putting a "limit on the nation's credit card".
"Paying out even more money to people from all nationalities who may have worked in this country years ago but no longer live here is not a fair use of the nation's cash," he said.
An unimpressed Ed Balls during Mr Osborne's statement
But he vowed not to include the basic state pension in his welfare cap, despite Labour signalling it would and experts warning its exclusion would make the limit "meaningless".
In further moves on benefits, jobseekers will have to wait seven days before they can claim handouts and sign in once a week, and foreign applicants will be forced to learn English.
In his last spending review in 2010, Mr Osborne set out plans to eliminate the deficit by 2015 - allowing the cuts to end in time for the election.
But sluggish economic growth and a rising deficit have forced him to impose further drastic savings for 2015/16.
There was some positive news as billions more was pledged for key infrastructure projects over the next five years, further details of which will come on Thursday.
More than £3bn in capital investment will go on affordable housing, Mr Osborne said, and science capital funding will rise from £0.6bn this year to £1.1bn in 2015/16.
The education budget will also rise by £53bn to cover extra spending on schools, with the pupil premium extended and funding for another 180 free schools.
The Commons statement was highly political, coming less than two years before the next election and outlining plans for a time Mr Osborne hopes the Tories will be in power alone.
He said: "I know that times are still not easy for families. But we have a clear economic plan. We've stuck to it. It is working. And I'm determined to go on delivering it."
Labour claims the Government will go into 2015 with state debt at £96bn and has pushed borrowing up by £245bn more than planned at the last spending review.
However leader Ed Miliband has admitted he cannot promise to reverse any of Mr Osborne's cuts in day-to-day spending if he wins the next election.
John Cridland, Director General of the CBI , said: "The Chancellor has carefully walked a tightrope of protecting growth, while making sizeable savings to pay down the debt."
But he warned the Government had to deliver on its promises about infrastructure, saying it was "critical we see a real pipeline of projects" announced by Danny Alexander tomorrow.
TUC general secretary Frances O'Grady said: "This is a toxic mix of bad economics, nasty politics and dishonest presentation.
"The last thing our struggling economy needs is further cuts to spending to try to close a deficit made worse by the Chancellor's earlier cuts.
"When the medicine is not working and side effects are choking the patient, you need a change in treatment, not more of the same.
Ahead of the statement, Sky's City Editor Mark Kleinman revealed the Government's main body for encouraging inward investment and promoting British companies abroad, UKTI, faced an 8% cut to its budget.
There will be no reduction in military manpower under the settlement 
