Alistair Darling's plans for tax cuts in Monday's pre-budget report will take place against the backdrop of a rapid deterioration in the government's finances, according to official figures released today.
Economic slowdown, the collapse of the housing market, financial turmoil and tax concessions since the budget combined to leave the state in the red by £1.4bn last month - the first October deficit since 1994.
The Office for National Statistics said government borrowing in the first seven months of the 2008-09 financial year stood at £37bn - almost double the £20.1bn amassed in the same period in 2007-08. City analysts said the budget deficit could rise to £70bn this year and top £100bn in 2009-10 even before the extra borrowing for Monday's fiscal package was taken into account.
Ministers believe that the recession, diminishing inflationary pressure and the low level of public debt mean that it is right to give the economy a boost by helping businesses and those on low incomes.
The shadow chancellor, George Osborne, criticised plans for a PBR giveaway.
"Gordon Brown's failure to prepare Britain means that borrowing has reached record levels before we've seen the worst of the downturn and before he embarks on a further borrowing binge.
"He has maxed out on the nation's credit card and now he's planning to take out another one."
A breakdown of today's data showed that the main cause for the deterioration in the public finances has been much slower growth in tax receipts than Darling was expecting at the time of the budget. Revenues were 1.9% higher between April and October than they were in the same period last year, but the Treasury has pencilled in growth of 4.9% for 2008-09.
Borrowing in the first seven months of the year is almost up to the Treasury's £43bn for the whole of the year. The public finances tend to be in healthy surplus in October, because it is on one of the heaviest months of the year for collecting corporation tax.
Michael Saunders, analyst with Citi, said the hole in the public finances was going to get much bigger and would reach 7-8% of GDP in the next couple of years - even if the stimulus package on Monday was small or non-existent. "Large fiscal stimulus could easily send the deficit up to around 10% of GDP, a level rarely seen in major industrial countries."
Ministers are insisting that the tax cuts to be announced next week will be temporary and that the PBR will outline plans to bring borrowing back down once the economy is through the recession.
