Chancellor Alistair Darling today gambled on a rapid economic recovery to rebuild Britain's battered finances as he revealed that borrowing this year would hit a record £175 billion.
In a grim Budget statement he outlined the full depth of the economic crisis.
Mr Darling warned that output would shrink by 3.5 per cent this year - more than doubling his previous forecast.
And he revealed that borrowing this year would soar to £175 billion - with another £173 billion in 2010 - as the country battled with the worst global downturn in 60 years.
He also said deflation would plunge to minus three per cent by September.
Despite the bleak figures, Mr Darling insisted public finances would get back on track with a halving of borrowing within four years as the economy began to recover from the end of the year.
But Tory leader David Cameron launched a scathing attack on the Government's handling of the economy.
He said: "As of today any claim they have ever made to economic competence is dead, over, finished."
The Chancellor made clear that his plans depended on a rapid economic bounce-back - with a forecast of 1.25 per cent growth next year rising to 3.5 per cent in 2011.
Nevertheless, he admitted that the economy would first face of period of deepening deflation with the Retail Price Index falling to a low of minus three per cent by September.
The Chancellor warned that rebuilding the public finances would take "tough decisions"
He said the planned new top income tax rate of 45 per cent on incomes above £150,000 will be increased to 50 per cent and take effect from next April - a year earlier than planned.
And from April 2011, pension tax relief would be restricted for those with incomes over £150,000.
Mr Darling defied calls from transport and motoring groups for another freeze on fuel duty which will rise by 2p a litre in September and then by 1p a litre above inflation each April for the next four years.
But he confirmed the Government would attempt to kick-start the ailing motor industry by introducing a car-scrappage scheme.
Anyone with a car registered before 31 July 1999 will get a cash incentive of £2,000 to trade in their old vehicle for a brand new one.
A total of £1,000 will come from the Government and the remaining £1,000 from car companies, with participants being able to buy any new vehicle, including small vans, rather than just low-pollution models.
Around £300 million has been put aside by the Government to fund the scheme which is expected to come into effect as early as mid-May and will last until the grant runs out, thus enabling 300,000 consumers to benefit.
Drinkers and smokers will be hit with alcohol duties to go up by 2 per cent from midnight tonight, while there will be an increase in tobacco duty of 2 per cent from 6pm tonight.Reuse content