Gordon Brown and Alistair Darling are to attempt to borrow their way out of Britain’s economic problems by drastically revising the rules that have governed Labour’s stewardship of the economy for 11 years.

The Chancellor is expected to change the fiscal rules in the autumn to enable borrowing to go beyond the maximum 40 per cent of gross domestic product (GDP) allowed under the existing rules.

This will prompt criticism about the Government’s competence, but Mr Darling will defend the move on the ground that a new economic cycle began in March. The move means that he and Mr Brown have decided that they can avoid putting up taxes or eating into three-year spending deals already agreed with government departments.

The rejigged rules - likely to be announced in the PreBudget statement - are expected to allow higher borrowing as the economy slides.

Treasury officials are braced for figures showing that their tax revenues have fallen sharply because of the economic downturn.

Mr Darling borrowed £2.7 billion to pay for the package that defused the row over the abolition of the 10p tax rate, and clearly believes that he can afford to go beyond that.

The Conservatives suggested last night that the Government’s reputation for economic competence was in shreds. But the Treasury insisted that its senior officials had made plain three months ago that there would be new rules for the new cycle.

With the Government on course to break the rule limiting net public sector debt to 40 per cent of national income, a new framework would initially be looser. A consequence will be to make it easier to borrow more in the downturn, although the main reason for the change is to restore confidence in the rules, so the medium-term budgetary position might be tighter than planned.

The work to redraw the rules on spending and taxation comes as the public finances face severe strain. Public sector borrowing was 50 per cent higher in the first two months of the financial year and value added tax (VAT) and stamp duty will be hit by rising inflation and falling housing transactions respectively.

Details of the move are yet to be finalised and will depend in part on far-reaching revisions to key figures on the true state of the economy due from government statisticians at the end of September. These could either lead to a more flattering picture of the Treasury’s books or make them look much worse.

It is clear that the changes will raise the ceiling for overall national debt above the 40 per cent of GDP limit set by Mr Brown as Chancellor, which is already close to be being breached. The Treasury’s existing forecasts show that debt will reach 39.8 per cent cent in 2010-11.

The Treasury’s second rule - the so-called Golden Rule, which says that over an economic cycle the Chancellor can use borrowing only to fund investment in projects such as schools and roads, not for day-to-day spending - is also likely to be recast.

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