A collapse in tax revenues will send government borrowing soaring above £60 billion this year, it emerged last night.

Gordon Brown is preparing to tear up his “golden rule” on debt in order to fund a massive spending spree to counter the looming recession. Some economists predict that the level of government borrowing could reach £110 billion by 2011.

The triple shocks of the financial markets crash, housing slump and rising inflation will cause a drastic reduction in the billions of pounds that the Treasury normally receives in stamp duty, corporation tax and income tax, combined with the need to spend more on benefits.

But Alistair Darling will confirm tomorrow that new, “flexible” financial rules will be introduced to allow the Government to borrow as much as £3,225 for every person in the country in an effort to stave off an even deeper recession.

The Chancellor will also claim that the new rules will set out a “credible plan” for reducing borrowing swiftly when the economic tide finally turns.

However, alarm over Britain’s precarious financial position has spooked the markets. The pound fell to its lowest level in six years yesterday and shares endured more volatile trading amid expectations of an emergency cut in interest rates. Lord Mandelson, the Business Secretary, said: “I don’t think people have yet realised what the impact is going to be on the real economy, on businesses and jobs.”

Mr Darling will set out the background for the revised financial rules in the annual Mais lecture. He will not reveal the details but will leave no doubt that his aim is to allow borrowing to rise in the short term and be brought back on course later on.

He will say that the impact of the downturn will be felt far more quickly than in previous recessions because of the big reductions in corporation tax and income tax through the loss of City bonuses, the drying-up of the housing market - which has slashed the stamp duty take - and the fact that next year’s benefit increases will be based on last month’s high-water inflation figure. The borrowing figures and revised rules will be revealed in the PreBudget Report next month.

David Cameron said the borrowing was not to get Britain out of recession but because of the mistakes that Mr Brown had made as Chancellor. “This is not a man with a plan, it’s a man with an overdraft,” he said.

The Bank of England said that the five biggest banks and Nationwide building society could lose as much as £130 billion over the next five years, well in excess of the £50 billion that the banks recently promised to raise as part of the Treasury’s £500 billion bailout plan, forcing the banks to ask shareholders for even more cash.

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