Pressure on the Chancellor was ratcheted up today as he faced a renewed warning that he is in imminent danger of breaking his own rules for the public finances, and that substantial tax rises or spending curbs will be needed in coming years to escape this fate.

With a sharp economic slowdown set to last well into next year, the Organisation for Economic Cooperation and Development (OECD) said that tax revenues would be hit, increasing stress on the Treasury’s books as government borrowing soars by £31 billion over the next two years compared with Alistair Darling’s plans.

In the latest embarrassing warning for Mr Darling over the worsening state of the nation’s finances, the OECD forecast that the fall in tax receipts would send the Treasury far deeper into the red than the Chancellor is forecasting, seriously endangering his fiscal rules.

The OECD expects that government borrowing will surge from 3 per cent of national income (GDP) last year, to a hefty 3.8 per cent this year.

That compares with Mr Darling’s forecast for a deficit of only 2.9 per cent of GDP and would add an extra £13 billion to his borrowing plans. This would push the borrowing total for this year up to £56 billion, rather than the £43 billion that the Chancellor has estimated.

Next year, the OECD projects that borrowing will remain at 3.7 per cent of GDP, rather than falling to the 2.5 per cent that the Chancellor has forecast - a gap equivalent to £18 billion of extra borrowing.

Based on these rapidly worsening trends, the OECD warned the Chancellor that his “sustainable investment rule”, which is supposed to cap the national debt at 40 per cent of national income, would be breached next year - even excluding the Northern Rock debts that the Treasury has been forced to shoulder.

The think-tank said it was harder to judge whether the “golden rule”, requiring that all government spending, other than investment, is paid for from taxes, rather than borrowing, was in immediate danger, because this is gauged over an economic cycle the exact dates for which are not known.

However, the OECD sounded a warning that, “it is clear that much tighter fiscal policy will be required in the future if the rule is still to be respected.”

That verdict points to a need in future years for either significant tax rises or even more drastic curbs on the growth of government spending than the Chancellor has already laid out.

The OECD compounded the embarrassment for the Government as it concluded that the problems were rooted in the Treasury having been too lax in early years, under Gordon Brown. “The Government’s options have been limited by excessively loose fiscal policy in past years when economic growth was strong,” it said.

A spokesman for the Prime Minister rejected the OECD’s assessment. "The Government is committed to its fiscal rules,” he said.

The Conservatives and Liberal Democrats seized on the report, however.

“This is truly awful news for the Government,” Vince Cable, the Lib Dem Treasury spokesman said.

The Chancellor’s woes were compounded as the OECD also challenged his prediction that the economy would rebound strongly next year. While Mr Darling expects growth to revive to between 2.25 and 2.75 per cent in 2009, the OECD expects the economy to grow by only 1.4 per cent in 2009, after 1.8 per cent this year - the bottom end of the Treasury’s forecast range.

Explore Economics

• Pre-Budget Report 2008

• 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