Gordon Brown declared that borrowing was the “right policy” yesterday as government figures showed that its finances went £37.6 billion into the red between April and September.

He said that safeguarding homes, jobs and small businesses would be the “central mission” of the Government in the coming months and it would bring to the task the same determination it showed in averting meltdown in the financial systems.

The Prime Minister’s promise came as Lord Mandelson, the Business Secretary, ordered a review into regulations concerning factors such as cashflow and access to finance that affect business.

The Conservatives also announced proposals to cut National Insurance by 1p for companies with fewer than five employees and for a VAT holiday for companies with up to 250 employees, both for six months.

Despite the highest borrowing figure for the first half of any financial year, the Prime Minister insisted that Britain was in a “stronger position than at any other downturn” and could borrow now because of debt already paid off.

The figure was drastically up, by 75 per cent, from the £21.5 billion total for the same period in 2007-08, and was the highest for the first-half of any financial year since records began in 1946. Net government borrowing for September alone also set a record, at £8.092 billion - almost double the £4.775 billion figure for the same month last year.

City economists now expect the Chancellor to be forced to borrow £60 to £70 billion over the full year, and they renewed warnings that borrowing could surge above £100 billion in coming years as a recession undercuts tax receipts and triggers spiralling welfare bills because of higher unemployment.

Amid warnings that Britain has already tipped into recession, Mr Brown said in the Commons: “The United Kingdom cannot insulate itself from this global downturn. But with interest rates low and falling, inflation expected to come down over the next year, these underlying economic indicators - particularly interest rates - make us stronger than at any other previous downturn.

“Debt has been considerably lower than a decade ago, and lower than all G7 countries except Canada, enabling the Government to increase borrowing at the right time to support the economy.”

David Cameron said forecasters believed that government borrowing could reach £64 billion this year. He asked why the “cupboard was bare” when firms and families needed help.

The Institute for Fiscal Studies said that it expected the Treasury to have to borrow about £64 billion in the current financial year.

Michael Saunders, chief UK economist at Citigroup, said: “We forecast the full year budget deficit at about £60 billion – a record high in cash terms, and the highest as a share of GDP since 1995-96, with the deficit heading up to about £86 billion in 2009-10 and £101 billion (6.5 per cent of GDP) in 2010-11.”

The public finances could be pushed even deeper into the red in the run-up to the next election after the Treasury signalled at the weekend that it is drawing up plans to bring forward spending from future years in an effort to bolster growth and stave off a severe economic slump.

City economists sounded warnings that while the plan to “frontload” public spending is likely to help to stave off recession, and made sense in the context of the downturn, the eventual price would come in higher taxes and a public spending squeeze after the next election.

Economists also cautioned that the impact of the tighter finances needed after the election could mean a weaker recovery from recession for the economy.

Following Mr Mandelson’s order to review regulations affecting business, he faced criticism yesterday after reports that his study of policies towards business would delay the plan to expand “flexitime” to the parents of children under the age of 16 rather than 6 as at present.

However, The Times was told last night that moves to extend flexible working were expected to survive. Authoritative sources said that, although no decisions had been made and that all regulations were being looked at, the flexible working plan was likely to go ahead.

It was backed at the Labour Party conference last month and dropping it would cause an outcry among Labour MPs and the unions.

Lord Mandelson had been warned that delaying the right to request flexible working, because of the economic downturn, would send out the “completely wrong message” and risk hitting Britain’s competitiveness.

The Chartered Institute of Personnel and Development sent out a strong message of support for the expansion of flexible working to parents of children under the age of 16 rather than six at present.

Business leaders gave a guarded welcome to the Conservative’s proposals to cut National Insurance for very small businesses and for a VAT holiday for companies with up to 250 employees.

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