The Liberals, having campaigned on opposition to VAT tax rises, are suffering due to being part of a coalition introducing them. A Telegraph poll has Lib Dem support down 5% to 16% - a tremendous collapse compared to Clegg's pre-election honeymoon, with Labour gaining 4% and the Tories up 2%. Now, it seems that about half of Liberal voters may defect.

If that held true in a general election, I'm guessing that the Liberals would be wiped out in the London and the north-east, and seriously depleted in their south-western strongholds. What the Liberals have done here is to apply a pincer squeeze on their own support. Giving George Osborne a 'progressive' imprimatur enables the Tories to shed their nasty reputation with centrist, and conquer currently Liberal-occupied territory. Passing a budget that openly attacks the public sector, welfare, and introduces regressive taxes - all the while giving in to the Tories in issues such as immigration, nuclear weapons and war - destroys the Liberals' reputation as a slightly progressive alternative to New Labour.

It's early days, but there are already presentiments of a potential meltdown in the Liberal faction of the coalition, with some Liberal MPs expressing unease or threatening rebellion. Simon Hughes has been elected deputy leader of the Liberals the better to coopt and contain people like him, but he has a real problem in that he represents a sizeable chunk of London's working class. And there is a crop of more recent Liberal arrivals who have sprung up in former Labour heartlands, who are at more immediate risk than Hughes. People like Sarah Teather, who exchanged her conscience for a cabinet position (she probably thought it was a bargain), will pay a high price for their loyalism. The party bosses undoubtedly think they need to brazen this out, wait for the immediate shock-waves to pass, and I've made the point before that Liberal voters, while not especially left-wing on economic issues, are largely not Thatcherites. Unlike many Liberal activists, they never supported the Orange Book crowd who took control of the party after the ouster of Charles Kennedy, and were never free market fundamentalists. This is less than a week after the budget was unveiled. Let's see what happens when it really starts to hurt.

Osborne's budget is an attack on consumption, and a bonus for capital. It is a redistribution of wealth from the poorest to the wealthiest, on the assumption that it is the wealthy who will drive economic growth. VAT, a notoriously regressive tax, is to rise by two and half percentage points to 20% - Osborne had promised in opposition that he would not need to increase VAT, knowing how unpopular this would be. Housing benefits will be cut, disability benefits cut, child benefits frozen, and other benefits such as job seekers allowance will rise in line with CPI rather than RPI. The total annual reduction in spending on benefits will reach £11bn by 2014.

Most public sector workers will have a pay freeze for three years, meaning a de facto pay cut by whatever the rate of inflation is (currently 3.5%). Average real term spending cuts will amount to 25% except in ringfenced spending in health and international aid. 25% is a huge reduction, even bigger than anticipated, or advertised. There are a few off-setting measures that would in theory protect the poorest - linking pensions to earnings, increasing child tax credits - but the net effect will be a severe squeeze on working class consumption.

For capital, it's a different story. Government largesse flows in abundance - not for them the age of austerity. Corporation tax is to be reduced to 24% within four years. Capital gains tax will be increased for a very small minority of wealth-holders, but there will be a higher relief threshold for "entrepreneurs", such that the first £5m gained from the disposal of all or part of a business, or in the course of running a business, will be entitled to relief, reducing their tax to 10%. Small business tax will be cut to 20%, and employers contributions to National Insurance will be cut. A small bank levy will take back £2bn a year, but again it's a relatively trivial offset to a very large golden hello from the Tories and Liberals to their business friends.

The logic, insofar as logic is the correct term, is that such measures will encourage investment. Osborne complained in his budget that the state made up almost half of all income in society which was "unsustainable", and the Tories have long insisted that growth had to be stimulated in the private sector. But, as economists as diverse as Paul Krugman, Martin Wolf and Samuel Brittan point out, this is nonsense. The net effect of such measures will be to exert a serious downward pressure on demand, thus on growth and thus on investment. It will increase unemployment and reduce taxable income, which will tend to increase the deficit. David Blanchflower argued that previously announced austerity measures are likely to add a quarter of a million to the ranks of unemployed young people. And, although the media and the government have worked hard to scare people over this, repeating the mantra that there is no money, it needs to be repeated and underlined that there is no need to do this. Most of Britain's debt matures in more than a decade from now.

Politics is rarely pure, and never simple - but this is class war, pure and simple. That being the case, Bob Crow is surely right to call on the TUC to convene an emergency conference to plan and coordinate actions to defend working class living standards. He calls the cuts Thatcherite. Thatcher wishes she'd accomplished anything like this.