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George Osborne has announced a radical shakeup of savings and pensions in a blatant attempt to stem Conservative defections to Ukip as he spurned big tax giveaways in favour of

business-friendly measures in the penultimate budget before next year's general election. The chancellor made his pitch for Britain's greying vote in a package for "makers,

doers and savers" designed to complete the repair job after the deepest recession of the modern era, warning that cuts would continue long into the next parliament. He reeled off a

series of inexpensive but headline grabbing measures – including tax reductions on bingo, a penny off a pint of beer, £200m to repair potholes, and inheritance tax exemptions for emergency

workers who lose their lives – but the fifth coalition budget since 2010 created more waves in the financial markets than it did at Westminster. The City was stunned by reforms that will

mean people will not have to take out annuities when they retire and will remove all restrictions on how new pensioners have access to their pension pots. Osborne revealed changes to

tax-free Isas, the abolition of the 10% tax rate on savings and a new pensioner bond in addition to liberalising measures that will give those retiring new freedoms to keep their own

savings. The disillusionment of those aged over 50 with David Cameron's modernising project and the ultra-low interest rates of the past five years are seen by Downing Street as the

single biggest force driving the Ukip surge. Shares in companies selling annuities fell sharply after the chancellor said he wanted to help savers, a group hard hit by the record low 0.5%

interest rate kept in place by the Bank of England for the past five years. Osborne boasted that the UK economy was growing more quickly than any of its major industrial rivals and said a

more rapid reduction in the budget deficit would save £42bn in debt interest payments. But while the independent Office for Budget Responsibility said growth of 2.7% in 2014 and 2.3% in 2015

would be higher than anticipated, it predicted that this would be at the expense of slightly slower expansion in future years as the economy ran up against capacity constraints. Osborne

said austerity would need to continue after the election, when 90% of the deficit reduction was planned to come from spending cuts. The chancellor said his measures were designed to deal

with the economy's long-term weaknesses. "The economy is continuing to recover – and recovering faster than forecast," he told the Commons. "We're putting Britain

right. But the job is far from done. Our country still borrows too much. We still don't invest enough, export enough or save enough." In his response Ed Miliband said the budget

did nothing to address falling living standards and said it ducked the challenge of reforms needed to energy, banking and housing. The Labour leader described the budget as the same old Tory

trick "running an economy of the privileged, by the privileged for the privileged". The Liberal Democrats were cheered by the heavily trailed £500 increase to £10,500 in the

tax-free personal allowance from next spring, but Osborne failed to heed calls from the Conservative right for increases in the threshold at which people start paying income tax at 40%.

Business groups hailed a doubling of government lending available to exporters to £3bn, a doubling of investment allowances to £500,000 until the end of 2015, and a package designed to cut

the energy bills of UK manufacturers. Environmental groups attacked the budget as anti-green but John Cridland, the director-general of the CBI, said: "It will put the wind in the sails

of business investment. I struggle to find anything I am disappointed by." TUC general secretary, Frances O'Grady, said: "This was a pre-election budget, with its giveaways

aimed at the better off rather than lifting the living standards of the many. It will be paid for by further years of austerity, public services brought to near collapse, public sector pay

cuts and a welfare cap that bites into the safety net that any of us might need." Labour said it would support Osborne's savings announcements provided the reforms did not lead to

middle-class tax evasion, a reduction in overall savings ratio or leave pensioners in penury if they spent their savings at the outset of retirement, leaving them dependent on the state

pension and means tested support. Osborne presented the reforms as about extending choice, saying "pensioners will have complete freedom to draw down as much or as little of their

pension pot as they want, anytime they want. No caps. No drawdown limits. Let me be clear: no one will have to buy an annuity." The current tax rules "are a manifestation of a

patronising view that pensioners cannot be trusted with their own pension pots", he said. "It's a matter for people to choose how they spend their money," added Danny

Alexander, the Treasury chief secretary. Osborne said savers would no longer face the current 55% penalty charge if they tried to take the rest of their pension after their tax-free lump

sum, but would be taxed at marginal rates – meaning as little as 20% for most pensioners. The reform means savers can take their whole pension as cash. The Treasury's forecasts suggest

many will pull cash out of their , paying the normal rate of tax, leading to a windfall of £1.2bn in tax by 2018-19pension. The political risk for Osborne is the technical nature of the

reforms, and the length of time before they come into force, will not be enough to ensure , the single group most likely to vote, pensioners are lured back to the Conservatives in time.