Public borrowing will soar to a record £175 billion in the current year – or12.4 per cent of the UK’s annual economic output.
The plunge into the red comes as the Treasury wrestles with a toxic combination of falling tax receipts, higher spending and the cost of bank bailouts.
Including the £90 billion borrowing for 2008-09 unveiled yesterday, total net borrowing is forecast to hit £696 billion by 2012-13 – almost £240 billion more than the Chancellor predicted in November’s Pre-Budget Report.
Mr Darling also confirmed the worst year for the economy since the Second World War with a 3.5 per cent decline in 2009 – far worse than his pre-Budget forecasts.
He expects the economy to grow by 1.25 per cent in 2010 – also below November’s forecasts – before the pace of the economy quickens in 2011 with a3.5 per cent expansion.
Conservative leader David Cameron attacked the soaring levels of borrowing unveiled by the Chancellor. He said Mr Darling had written himself into the history books and “written a whole chapter in red ink”.
The Chancellor said net debt as apercentage of GDP – formerly pegged below 40 per cent under the Treasury’s now-shelved fiscal rules – would soar to 79 per cent in 2013-14.
This is virtually double the former target introduced by then-Chancellor Gordon Brown when Labour came to power.
Debt as a share of output will begin to fall in 2015-16, but balancing the current budget deficit will take another two years, the Chancellor added.
Mr Darling said the recession had hit tax revenues, especially in financial services, which accounts for 27 per cent of corporation tax revenues.
Although his Budget measures allowed for a fiscal easing of around0.5 per cent of GDP this year, this would also be followed by a tightening of 0.8 per cent of GDP per year until 2013-14, Mr Darling said.
He called this a “sensible pathway to sustainable public finances” and added that it would mean a halving of the budget deficit over the next four years.
Mark Smith, regional chairman at PricewaterhouseCoopers LLP in the Midlands, said: “We agree with the Chancellor that the economy will shrink by around 3.5 per cent this year, but we are more cautious about the speed of the recovery next year and beyond. Public borrowing in the medium term could therefore be even higher than the Treasury’s forecasts.
“The Treasury forecasts that net public sector debt will rise to close to 80 per cent of GDP by 2013-14, the highest level since the 1950s when the UK Government was paying down the debt accumulated during the Second World War.
“Before the Budget, our analysis suggested that the Chancellor needed to fill a fiscal gap of around 3 per cent of GDP, or around £43 billion in today’s values, in the medium term. The measures announced today will fill part of this fiscal gap, but are unlikely to be sufficient in themselves.
“A real freeze in public spending in the three years to 2013-14 may be required to fill this fiscal gap.”