The British economy will shrink by 3.5 per cent in 2009, finance minister Alistair Darling said today, the fastest rate of contraction since World War Two, although he expects growth to resume by the end of the year.
The finance minister Alistair Darling has announced a new top tax rate of 50 per cent for those earning more than £150,000 from next April.
In other measures, excise duty on petrol will increase by 2 pence per litre from September and then by 1 pence a litre above inflation each April for the next four years.
Duties on alcohol will go up by 2per cent - or about 5 pence a pint - from midnight. Duties on tobacco will rise 2 per cent from 6pm today. Mr Darling expects measures to raise more than £6bn by 2012.
He is also forecasting government borrowing of £173 billion this year, more than 12 per cent of GDP as the credit crisis limits tax revenue and brings higher welfare spending.
Mr Darling predicted borrowing of £173 billion in 2010/11 - up from a £105 billion estimate in November - and borrowing needs of £140 billion in 2011 to 2012.
"As a share of GDP, our borrowing will be 11.9 per cent of GDP next year, and then, as we move towards balance, 9.1 per cent in 2011-12, then 7.2 per cent and 5.5 per cent in 2013-14," Mr Darling told parliament in his budget address.
Mr Darling said he expected recovery to begin by the end of the year, but forecast growth of only 1.25 per cent in 2010 - downgrading a previous forecast for expansion of 1.5 to 2 per cent next year.
"The action already taken here, and internationally, and the measures I will announce today, mean that I expect the economy to start growing again towards the end of the year," Mr Darling told a packed lower house.
The centre-left Labour government needs to engineer a political recovery in time for an election due by mid-2010. Latest polls show the opposition Conservatives with a lead of at least 10 points in opinion polls. Labour has ruled since 1997.
Setting out what he said was a budget to take Britain through the most serious global economic turmoil for over 60 years, Mr Darling stressed the effects of the credit crisis were being felt by all major trading nations.
The immediate outlook is grim. Figures out today showed another 73,700 people signed on for unemployment benefit last month. The wider jobless measure stood at 6.7 per cent in February, the highest since the year Labour came to power in 1997.
Mr Darling said he was making an additional £1.7 billion available to help people who lose their jobs.
Sterling and government bonds fell after the jobs figures were released and Mr Darling needs to convince financial markets the budget can be brought to heel at some future date.
The Treasury said yesterday it can find another £10 billion pounds of "efficiency savings" by 2013 on top of the £5 billion it pencilled in last year.
Agencies