George Osborne emerged better than he expected from his first budget. Having set the public up for something nasty, he gave it to them. Whether people expected something worse, or accepted his description that the budget was "tough but fair", the mood has been one of resignation and not revolt.

Though politicians played a game of "hide the pain" in the election, voters knew they were facing grim reality after Labour's profligacy.

The hard work, of course, starts here. Mr Osborne intends that the lion's share of the £40 billion of deficit-cutting measures he announced last week, on top of £73 billion he inherited from Labour, will come from spending cuts.

This week the Treasury will tell Whitehall what it expects, with unprotected departments facing real-terms cuts of up to a third by the end of the parliament. It wants their proposals within a matter of weeks.

The government is gung-ho about the spending review, convinced it can deliver what the Institute for Fiscal Studies describes as the longest and deepest cuts to public services in the post-war era.

Good though that confidence is, ministers are making the task harder than it need be. This year the Treasury plans to spend £122 billion on health.

Today we report that the austerity sweeping through the public sector has yet to affect the NHS. Trusts are advertising more "non-jobs" than ever, including change facilitators and marketing managers. Doubtless those recruiting have convinced themselves these roles are vital. Only in a world insulated from financial reality could this remotely be the case. Yet the government, by ring-fencing the NHS from cuts, intends to do just that.

The government argues that health needs real rises of 2%-3% a year just to stand still. It has too easily accepted that the NHS leviathan cannot be touched. Experts cited by Reform, the think tank, say £20 billion could be cut without harming patient services. It is called efficiency, and is desperately needed.

Similarly, while the chancellor's plan to save £11 billion a year by the end of the parliament through welfare cuts was welcome, it was a modest start. Welfare spending will grow from £194 billion to £222 billion over the next five years in spite of falling unemployment. Freezing child benefit was the line of least resistance for a chancellor keen to secure a deal with his coalition partners. Far better, though this would affect many Sunday Times readers directly, to end the universality of this benefit, removing it from middle and higher earners.

The same is true of benefits such as the winter fuel allowance and free bus passes and TV licences, which well-off pensioners do not need. Some may like the idea of the state as Lady Bountiful. Many would prefer to end a culture of entitlement.

Only by getting to grips with Britain's bloated state can a genuine enterprise society be created. Mr Osborne has made a start, setting out a programme for reducing corporation tax to an internationally competitive 24% over four years, and increasing to £5m the amount of entrepreneur's relief from the new higher rate of capital gains tax. He also needs to set himself a target for reversing Labour's rise in the top rate of income tax to 50%, which makes it harder for Britain to grow its way out of the crisis.

While he must protect key parts of the public sector, the non-jobs should go and there should be a review of the structure and scope of government.

A smaller and more efficient state is the key to a successful economy, and thus better living standards for all.