Sports Calendar

“We are going through a very, very difficult time,” he said. “You have the twin effect of the credit crunch and very high oil prices. That means the economic news is going to be difficult for quite some time.”

However, he insisted that the country was not in recession and was well placed to deal with the downturn because unemployment remained low. He believes that oil prices will remain high and that there will be further “downward pressure” on the housing market in the coming months.

On the vulnerability of banks, he said: “The real problem we are facing today is a consequence of the fact that too many banks at a very senior level didn’t understand the extent of the risk to which they had become exposed.”

Treasury officials are braced for figures showing that their tax revenues have fallen sharply. Mr Darling had to borrow £2.7 billion to defuse the row over the abolition of the 10p tax rate. He will also have to find money to pay for this week’s announcement that fuel tax would be deferred.

The toll on tax receipts from the weakening economy was spelt out in yesterday’s figures. Total tax payments fell 1.5 per cent last month compared with the same time last year, against a Budget forecast for a 4.5 per cent rise over the full financial year.

In June, national insurance payments fell 8.3 per cent compared with a year earlier, VAT payments fell by 4.6 per cent and corporate tax payments were flat.

Treasury officials themselves are understood to be increasingly fretful over the worsening financial trends.

The Chancellor played down that the Government is reviewing the fiscal rules, which say that borrowing must not go beyond 40 per cent of gross domestic product. “This routine work has been going at the Treasury for several months,” he said.

He made clear that he thought that the only politically viable option was to increase borrowing, rather than to raise taxation. “There’s always been a debate in this country about the right balance between tax and spend, but I’m pretty clear that people will say, ‘Yes, we’ve got to pay for all these things but remember me too, I need to see a balance’,” he said. “People will accept that they’ve got to pay for the schools for their children and for the hospitals in case they get ill, but they want to make sure the Government is fair about taxation.”

The Government is expected to announce new fiscal rules in the autumn which would allow it to borrow more money. The change has prompted criticisms from the Conservatives that Labour is being financially irresponsible. But the Chancellor is likely to defend it on the ground that a new economic cycle began in March.

In the interview he would not discuss details of any reform. However, he made clear that the Government already had plans to spend more money to alleviate pressure on people who are suffering as a result of the economic downturn. There will be more help for homebuyers, many of whom are struggling to get a mortgage as a result of the credit crunch.

“We will have other measures to support the housing market,” Mr Darling said. “Stamp duty is always a factor when people buy and sell houses but we need to make sure that we support the financial system too.”

He also hinted that he could scrap the fuel escalator, through which petrol prices are increased regularly. “We have frozen it from time to time and I will come back to it in the Budget,” he said. He made clear that the rise in vehicle excise duty was still under review. “It is important that there’s a clear environmental signal, but we have to be mindful of the fact that we are all taxpayers, we are all motorists.”

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