City warnings that government finances are set to plunge far deeper into the red than Alistair Darling has forecast mounted yesterday after figures were released showing that the Treasury racked up its biggest December deficit on record last month.

Tax receipts that were weaker than expected by the Chancellor were the driving force behind the latest sharp deterioration in the public finances, fuelling fears that government borrowing could spiral as a faltering economy further undermines revenue.

The worse-than-expected December data released yesterday showed that the Treasury was forced to borrow a net £7.8billion last month to plug the gap between spending and the month's disappointing revenues.

The monthly deficit was a record for any December and was £1.4billion higher than in the same month last year.

The worsening state of the Government's books was underlined by figures showing that net borrowing for the financial year to date climbed to £43.6 billion, £11.4 billion more than in the same nine months in 2006-07 and far above Mr Darling's full-year forecast of £38 billion for 2007-08.

Economists said that the Chancellor was on course to breach that forecast by at least £2billion or £3billion, but could end up exceeding it by much more if inflows of revenues continued to weaken.

The Treasury will be pinning its hopes on figures for January, usually a bumper month for tax payments, to improve the picture for the full-year and put the Chancellor back on track to achieve something close to his borrowing forecasts.

But the City's analysts now widely expect Mr Darling to exceed those projections as slower growth since the end of the last year undercut receipts from value-added tax, tax on City bonuses and corporation tax.

In the financial year to date, overall tax revenues are up only 4.9 per cent against the rise of almost 6 per cent implied by the Chancellor's Pre-Budget Report in October.

“The state of the public finances continues to go from bad to worse, and all before the slowdown in the economy has had any impact,” Jonathan Loynes, of Capital Economics, said.

The figures were the latest blow to Mr Darling, with only a few months to go until the Budget, and emphasised his lack of room for manoeuvre, with scant resources to allow him to bolster the vulnerable economy with fiscal measures through either higher spending of tax cuts.

Worries over the state of government finances are being heightened by the potential additional burden on the public purse of Northern Rock.

The Office for National Statistics said that it could not yet comment on the implications on the official public finance figures of the Government's plans to convert lending to the stricken bank into bonds while providing a continuing guarantee.

However, the independent Institute for Fiscal Studies said that depending on the view taken by the ONS about what support for Rock should count as part of the national debt, this could be swollen by £55 billion.

That would lift debt significantly above the ceiling set by Gordon Brown, dictating that it should not exceed 40 per cent of national income, to about 42 per cent.

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive