Alistair Darling also revealed a rise in public borrowing as tax revenues fall in the face of the recession and the financial services bail out.

He said public borrowing will increase to £175bn this year, followed by £173bn next year, £140bn in 2011 and £118bn in 2012.

He said debt as a proportion of the UK’s GDP will be 12% next year and will be 5.5% by 2013-14.

There will be some earlier introduction of taxes to help ease government debt with 50% income tax for salaries above £150,000 from April next year – a year ealier than thought.