George Osborne's Budget is to be debated by MPs after his announcement of a National Living Wage sparked a political row.
One Labour leadership contender, Liz Kendall, said the measure was a "con", while another, Yvette Cooper, said it "falls short" of being a living wage.
Paid to over-25s, it will start at £7.20 and rise to £9 an hour by 2020.
Making the surprise pledge, Mr Osborne said: "Britain deserves a pay rise and Britain is getting a pay rise."
BBC political editor Nick Robinson said the living wage pledge, as well as announcements on apprenticeships and the taxation of so-called non-doms, represented "a ruthless raid on Labour's manifesto".
As the Commons begins to debate the content of the Budget, influential think tank the Institute for Fiscal Studies will give its verdict.
Mr Osborne also scrapped student grants and froze working-age benefits but increased the overall tax take to slow the pace of welfare cuts.In a surprise announcement at the end of his speech, Mr Osborne said workers aged over 25 would be entitled to a "national living wage" from next April, to soften the impact of in-work benefit cuts.Other measures included:
An increase in the inheritance tax threshold to £1m for married couples by 2017
Working-age benefits to be frozen for four years - including tax credits and local housing allowance, but excluding maternity pay and disability benefits
Maintenance grants for students - paid to students with family incomes below £42,000 - to be scrapped and converted into loans from 2016/17
Scrapping housing benefit for under-21s
Corporation tax cut to 18% by 2020
Restrictions on tax breaks for "buy-to-let" landlords
A commitment to meeting the Nato target of spending 2% of national income on defence
Fuel duties frozen for the remainder of this year
New car tax bands with a standard charge of £140 - and new cars will not need MOTs for the first four years, rather than three
A fresh clampdown on public sector pay, which will be limited to 1% a year for the next four years
Pensions tax annual allowance to be tapered away to a minimum of £10,000 from next year
Confirmed that the BBC has agreed to absorb the £650m cost of providing free television licences for over-75s
The current minimum wage, which applies to those aged over 21, is £6.50. Those entitled to the "living wage" will get £7.20 and that will rise to £9 an hour by 2020. Labour had vowed to increase the minimum wage to £8 by 2020 during the general election campaign.
The move is expected to boost the wages of six million people but may cause firms to recruit more under-25s, who will be on a lower rate, according to the Office for Budget Responsibility.
The Treasury confirmed the measure would apply to both the public and private sectors.
The Local Government Association said it welcomed the move, but warned it would add a "potential upward pressure" to council budgets and said it expected local authorities to be compensated.
Ms Kendall attacked the policy on Twitter, saying it lagged behind the amount promoted by the Living Wage Foundation.
Ms Cooper, who claimed women would be hit harder than men by the measures in the Budget, said the new rate should "certainly not" be called a living wage.
Shadow health secretary Andy Burnham - who is also bidding to become Labour leader - said he would have paid the rate to all workers, accusing the government of "age discrimination in pay".
Business groups gave a mixed reaction to the National Living Wage pledge, with the Institute of Directors saying it was "time for companies to increase pay" but the CBI saying the government was taking "a big gamble" on wage increases that industry might not be able to deliver.
The Living Wage Foundation director Rhys Moore said the proposed £9 rate was a "massive victory" for campaigners, but that it was "effectively a higher national minimum wage and not a living wage", due to the different ways the two rates are calculated.
The TUC welcomed the announcement but said Mr Osborne was "giving with one hand taking with the other" and "massive cuts in support for working people will hit families with children hardest".
Mr Osborne announced that the £26,000 benefit cap - the amount one household can claim in a year - would be cut to £23,000 in London and £20,000 in the rest of the country.
The government will also make local authority and housing association tenants in England who earn more than £30,000 - or £40,000 in London - pay up to the market rent, but rents in the social housing sector will be reduced by 1% a year for the next four years.
The chancellor unveiled "just under half" of the £37bn in cuts he says are needed to clear the deficit, with the remainder to come from cuts to government departments to be announced in the autumn.
UK budget
UK budget
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”
Re: UK budget
UK conservatives would be to the left of the Democratic party in the US. Well to the left.
yrs,
rubato
yrs,
rubato
Re: UK budget
I agree. Budgeting for a $13.80 US minimum wage?
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”