Chancellor Alistair Darling has targeted high earners with a new 50p top rate of tax in an attempt to rebuild Britain's battered public finances as he revealed that borrowing will this year soar to a record £175 billion.
In a bleak Budget statement, Mr Darling said the economy would shrink by 3.5% in 2009 - more than double his previous forecast - but predicted a return to growth before the end of the year.
The new top tax rate will be introduced in April 2010, while people with incomes over £150,000 will also see their pension tax relief restricted from 2011 and personal allowances will be scrapped for incomes over £100,000 from next April.
Mr Darling set out plans for a tax and spending squeeze that will bring in £6 billion by 2012, rising to £17 billion by 2014, although that will still not bring the Budget back into balance until 2018.
His calculations, however, depend upon a forecast growth rate of 1.25% next year, rising to a heady 3.5% in 2011.
But soon after his Commons statement, the International Monetary Fund issued its own forecasts, predicting the UK would still be in recession next year, shrinking by a further 0.4%. The IMF forecast for the current year was also more pessimistic than the Chancellor's, estimating a 4.1% contraction in output.
The Tories said Mr Darling had delivered a "dishonest Budget" based on "fantasy forecasts".
The Confederation of British Industry also cast doubt on Mr Darling's "optimistic" figures.
CBI director general Richard Lambert said: "The key question for this Budget was whether it set out a credible and rigorous path for restoring the public finances to health. The CBI's preliminary judgment must be that it does not.
"The Chancellor's economic forecasts for next year and beyond look optimistic. By pushing out the horizon for balancing the books as far as 2018 the Government is running too much of a risk."
