Net borrowing could hit an eye-watering £118billion next year as the UK braces itself for recession.
The prediction for 2009/10 – more than treble March’s Budget forecast and equivalent to eight per cent of the nation’s output – comes as tax revenues fall and the government splashes out to aid the economy.
In the current financial year, net borrowing will reach £78billion, Mr Darling said. After next year’s peak, he forecast £105billion in 2010/11 and £87billion the following year.
Borrowing between this year and 2012/13 will reach £458billion – three times the level predicted in March.
He also forecast economic output of just 0.75 per cent in 2008 – compared to his March forecast of between 1.75 per cent and 2.25 per cent.
But next year the economy will contract between 0.75 per cent and 1.25 per cent, the chancellor said – far below his forecast of between 2.25 per cent and 2.75 per cent at the last Budget.
“Our economy cannot insulate itself from this global financial turmoil,” Mr Darling said.
Mr Darling predicted two quarters of falling output next year before the UK returns to growth in the second half of next year.
Output will recover to between 1.5 per cent and two per cent during 2010, again lower than predicted in March.
Mr Darling defended the huge rise in borrowing as the UK economy stalls.
“If we did nothing, we would have a deeper and longer recession, which would cost the country more in the long term,” he said.
As a proportion of output, the huge borrowing figures predicted by the Chancellor for next year surpass the £51billion racked up by the Conservatives in 1993/4, which stood at 7.8 per cent of GDP.
Investec chief economist Philip Shaw said the borrowing figures were much worse than expected and “not consistent with fiscal stability”.
He said the figures showed a “chronic budget imbalance”, adding: “I suspect a government at some point is going to have to take additional action.”
The chancellor’s gloomy forecasts come two months before the UK’s recession – defined by two successive quarters of contraction – is set to be officially confirmed after a 0.5 per cent decline in output between July and September.
Mr Darling also buried the government’s sustainable investment rule – which states net debt should not exceed 40 per cent of output – as he predicted this ratio would rise to 57 per cent in 2013/14.
The detailed Budget figures showed a total give-away of £25.6billion up to April 2010, before the government claws back £12billion over the next two years.
During the current financial year, total current receipts are expected to be almost £30bn below the level forecast in March.
Lower corporation tax, national insurance and stamp duty revenues account for the lion’s share of the shortfall as businesses struggle, unemployment rises and the housing market tumbles.
In 2009-10 the situation is even worse for the exchequer as revenues are set to fall more than £70bn below forecasts as the recession bites hardest.