Conservative and Liberal Democrat Cabinet ministers were today being encouraged to put their rivalries aside as they sat down together for the first time in David Cameron’s historic coalition government.

The one time foes – and now friends – gathered round the table at Number 10 Downing Street as the new Prime Minister and his deputy Prime Minister Nick Clegg got down to the business of running the country.

Saving

The economic recovery, banking reform and Afghanistan were discussed.

And the Cabinet agreed to a five per cent pay cut for all new ministers, and a five-year pay freeze, saving taxpayers’ £3 million during this parliament.

North Shropshire MP Owen Paterson, the new Northern Ireland Secretary, said all the issues were discussed in a “fairly good-humoured manner”.

“Most of us have not been in the Cabinet before so it was a real new experience, but there was a real sense of getting to work because we have this horrendous deficit which we have got to try and address,” he said.

When asked about the potential friction between the two parties on differing policies, he replied: “We all have to accept the election result. We have to work together for the good of the country. We can only do that with a strong parliamentary majority which we have now got with a coalition.”

The economy will dominate the discussions in the weeks ahead as the huge task of tackling Britain’s record £167bn budget deficit gets under way.

Mr Cameron and Mr Clegg have said they aim to reduce the debt through spending cuts rather than tax increases.

But leading economists predict a VAT increase from 17.5 per cent to 20 per cent before the end of 2011 — which would raise an extra £11.5bn a year.

Before the general election, both the Tories and the Lib Dems said they had no plans to raise VAT. However, both parties refused to rule out tax rises.

The coalition has said it is committed to a “significantly accelerated reduction” in the budget deficit, with £6bn of public spending cuts this year.

An emergency budget is planned within the next 50 days when it will be revealed how the Government intends to claw back the money.

In the meantime, they have put forward a range of policies for the next five years with compromises on taxation, immigration and political reform.

The income tax threshold will be raised from £6,475 to £10,000 in April 2011, saving most workers £700 a year.

Scrapped

A banking levy will be introduced and bankers’ bonuses slashed.

There will be an annual cap on non-EU immigrants and the controversial ID cards scheme will be scrapped, as well as a third runway at Heathrow.

The testing issue of Europe has been dealt with for the time being with the coalition agreeing to be a “positive participant” in the European Union, but not joining the Euro in this parliament.

And there will be a referendum on the Alternative Vote system.

After setting the tone of the administration by holding their first joint press conference yesterday, the job of filling junior government posts was also starting in earnest today, including further Lib Dem appointments.

By London Reporter Sunita Patel