Public deficits will reach £175 billion for 2009 according to Alistair Darling.
The chancellor of the exchequer has laid bare the UK's economic woes in a historic Budget speech delivered to parliament this afternoon.
Alistair Darling said that the credit crunch, which began in 2007, has led to "an extraordinary financial crisis" and "the most serious global economic turmoil for over 60 years" - and added that he expected the economy to contract by 3.5 percent in 2009.
This is significantly ahead of last November's pre-Budget report prediction of a one percent contraction for this year.
The chancellor also showed that the UK would face near-unprecedented deficits in the public finances over the next few years, due to the credit crunch. Debts are expected to hit £175 billion for 2009 and £173 billion for 2010 - equivalent to around 12 percent of total economic output for each year.
Britain's net borrowing was forecasted to grow from 59 percent this year to a peak of 79 percent in 2013/14, before stabilising.
Taxes are to be increased as the government aims to repay the deficits. The top rate of income tax for those earning £150,000 a year or more will increase to 50 percent from its current 40 percent from next April - a far more radical plan than that contained in the pre-Budget report, which proposed a 45 percent rate from 2011. The government will also end 40 per cent tax relief on pensions for high earners.
In the speech, Mr Darling laid out a range of measures aimed at helping to alleviate the downturn and promote eventual economic recovery, including £1.7 billion of funding to strengthen of the Jobcentre Plus network.
There is also a new plan to limit repossessions numbers including a six-month extension to the government's pre-existing "mortgage holiday" interest scheme, aimed at helping people who are struggling with their loan payments. The stamp duty suspension for homes worth £175,000 and under was also extended by three months until the end of 2009.
Mr Darling said that the UK economy would begin to grow again later this year, before registering 1.25 percent growth next year. This is more optimistic than a report from the Confederation of British Industry released earlier this week, which predicted a return to UK growth in April-June 2010.
