Delivering one of his most difficult Budgets yet, the Chancellor was forced to admit that government debt will rise as a proportion of GDP this year - breaking a key rule he had set himself - and growth forecasts have been sharply revised down.
Shares in listed drinks firms dropped sharply on the London market after the sugar tax announcement.
Irn Bru maker AG Barr, which also makes Tizer and St Clement’s, fell 5%, while Robinsons squash firm Britvic fell 3% and Vimto maker Nichols plunged as much as 11%.
Sugar giant Tate & Lyle was also under pressure, with shares falling 2%.
Osborne insisted the UK was “well placed” to handle the worldwide slowdown and the deficit would still be wiped out by 2019-20 - thanks in part to another £3.5 billion of spending cuts.
The embarrassing debt admission - which followed the breach of his welfare spending cap - came in a speech to MPs that included a number of surprise measures as well as a host of grim economic data.
Mounting an impassioned defence of his austerity programme, Mr Osborne argued it had saved the country hundreds of millions of pounds and prevented the next generation being “burdened”.
He insisted the policies meant he was able to give tax cuts for millions of hard-working families - with the personal allowance rising to £11,500 next year and the higher 40p rate going up to £45,000.
Fuel duty will be frozen for the sixth year in a row after he defied expectations of an inflation-linked rise and beer duty has also been put on hold, while corporation tax will fall to 17% by 2020 and there will be tax incentives for smaller businesses.
However, a 0.5% increase to insurance premium tax will generate £700 million to boost flood defences, and in the wake of the Google tax bill row, there will be a fresh £12 billion crackdown on tax dodging by firms and individuals.
The most eye-catching news was the introduction of a sugar tax by 2018, which will see companies charged based on the level of sugar in their products. The £520 million due to be raised will be used to help support school sport, he said.
In comments likely to enrage Tory Eurosceptics, Mr Osborne used the platform of his parliamentary set-piece to warn that leaving the EU was one of the biggest risks to the UK’s future. He also dragged the Office for Budget Responsibility (OBR) into the row, quoting the independent watchdog as agreeing that Brexit would lead to “disruptive uncertainty”.
“Our response to this new challenge is clear. We act now so we don’t pay later,” Mr Osborne said. “This is our Budget. One that reaches a surplus so the next generation doesn’t have to pay our debts.
“One that reforms our tax system so that the next generation inherits a strong economy. One that takes the imaginative steps so that the next generation is better educated.
“One that takes bold decisions so that our children grow up fit and healthy. This is a Budget that gets investors investing, savers saving, businesses doing business; so that we build for working people a low tax, enterprise Britain; secure at home, strong in the world.”
But Labour leader Jeremy Corbyn described Mr Osborne’s Budget as the culmination of “six years of his failures” and said it had “unfairness at its very core”.
The Labour leader said the financial proposals fail on productivity, investment and in tackling inequality.
Mr Corbyn added that the Chancellor is offering tax cuts to the very wealthy while disabled people lose more than £1 billion.