Rachel Reeves used her budget debut to announce a massive package of tax, spending and borrowing increases as she gambled on voters rewarding the government for patching up Britain’s crumbling public services.

Insisting that she was delivering on the choices the public made in July’s general election, the chancellor told businesses and the better off that they must bear the brunt of £40bn of tax increases needed for an emergency NHS cash injection and to plug the hole in the public finances inherited from the Conservatives.

The chancellor raised £25bn by increasing employer national insurance contributions and hit those on higher incomes through increases in capital gains and inheritance tax, and changes to the rules covering wealthy foreign individuals living in Britain.

Reeves said she was making good on her pledge not to hit the pockets of working people, refusing to raise fuel duty for motorists and knocking a penny off the price of a pint of beer. Despite speculation, the chancellor also decided against extending the freeze on tax allowances and thresholds.

Addressing a meeting of Labour MPs after her speech, Reeves said: “At this budget, the Labour government made our choices. They’re not easy choices, but they are the responsible choices in the national interest, and we now need to take the fight to the Tories.”

In all, the budget, the first delivered by a female chancellor, raised spending by £70bn a year over the next five years – with about half the increase paid for by tax increases and the remainder from additional borrowing made possible by changing the government’s debt rules.

Reeves said the extra borrowing would allow a major programme of capital investment in schools, hospitals, railways and energy. The NHS will receive a £22.6bn cash injection in 2025-26 as the government seeks to reduce waiting lists.

The Office for Budget Responsibility said the UK would receive a short-term growth boost from the cash for the NHS that would prevent a new wave of spending cuts for many Whitehall departments.

Yet the government’s independent spending watchdog warned that tax increases on business would lead to lower private investment and that the expected boost to growth from higher infrastructure spending would not occur until the next parliament.

It also warned that the budget would lead to slightly higher inflation, which could lead the Bank of England to keep interest rates higher for longer – feeding through to higher mortgage rates.

In a blow to the government’s growth ambitions, the OBR said over the course of the current parliament the economy would grow no faster under Labour than had been projected under the Conservatives.

Although the tax increases were the highest ever announced in a budget, Reeves told Sky News that it would be “irresponsible” to rule out more rises in the years ahead. There were also warnings from a leading thinktank that Reeves might need to raise more money in the future.

Paul Johnson, director of the Institute for Fiscal Studies, said Reeves was gambling that a big cash injection for public services over the next two years would be enough to turn performance around, and that many of the temporary spending pressures would not persist.

“If she’s wrong about that, and spending pressures don’t dissipate after two years, then to avoid cutting unprotected areas she may well need to come back with another round of tax rises in a couple of years’ time – unless she gets lucky on growth.”

Reaction to the budget was mixed. Kate Nicholls, chief executive of UKHospitality, said: “This budget is the latest blow for hospitality businesses. Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.

“In the short-term, the tsunami of employment costs coming in April will ultimately do more to hamper growth than incentivise it. Increases to employer NICs and wages will make it harder for businesses to support employment and invest in their businesses.”

The TUC’s general secretary, Paul Nowak, said: “There is no link between rates of employer national insurance and wages. At a time when senior bosses are earning 100 times average pay, and dividends continue to outstrip wages, no union would accept that their members should pick up the bill for a modest rise in employer NI contributions.”

George Dibb, associate director for economic policy at the left of centre IPPR thinktank, said the OBR was underestimating the beneficial impact of higher public investment, which he said would also boost private investment.

In addition, the OBR said it could not yet factor in Labour’s much-vaunted planning changes into its growth forecasts as there was “insufficient certainty” about them to adjust current forecasts.

Farmers across the UK reacted furiously to news that inheritance tax relief for farms would be limited to £1m. The National Farmers’ Union said it had been a “disastrous budget” for family farms, which would “snatch away the next generation’s ability to carry on producing British food” and they could end up being forced to sell land to pay tax.

Despite the scale of the tax and spending increases, money markets were relatively relaxed, with no repeat of the surge in government borrowing costs that accompanied the Liz Truss mini-budget two years ago. A spokesperson for the International Monetary Fund said it welcomed the government’s “focus on boosting growth through a needed increase in public investment while addressing urgent pressures on public services”.

Government ministers in Scotland, Wales and Northern Ireland welcomed a “huge” budget deal after the chancellor said the devolved nations would benefit from the largest real-terms funding since the advent of devolution, receiving a total of £6.6bn from the budget after years of spending squeezes under the Conservatives.

Reeves unveiled a series of significant investment pledges for all three nations, including new green hydrogen projects and city growth deals, as well as £125m to launch the new GB Energy headquarters in Scotland.

Darren Jones, the chief secretary to the Treasury, told reporters that public spending in Scotland would soon be 20% higher per person than the UK average.

Treasury figures showed the actual rate of funding increase in real terms over a two-year period was 2.3% for Scotland; 1.3% for Wales and 1.3% for Northern Ireland – lower than the forecast rate of inflation.