Speech in full | Blow-by-blow guide | IMF contradicts Darling | The many versus the few

Alistair Darling drew the battle lines for the next election today when he announced a new 50p top rate of tax for high-earners to help rein in record public borrowing.

In his second Budget as Chancellor, Mr Darling conceded that net public borrowing is to hit £175 billion this year and national debt will reach almost 80 per cent of GDP within five years.

But he predicted that Britain would start to lift itself out of recession by the end of 2009 thanks to the dynamism of the UK economy and burgeoning demand for high-tech exports.

In a Budget that promised more money for the jobless and for high-tech and green industries but did not deliver any real economic stimulus, Mr Darling announced that those earning more than £150,000 a year would be taxed at 50p in the pound, up from 40p, from next April. Those earning more than £100,000 a year will lose all personal allowances, significantly increasing their tax bills.

In his pre-Budget report, Mr Darling had already announced a rise to 45p from 2011 and his decision to bring the increase forward breaks a key pledge in Tony Blair's 2005 manifesto not to raise either the basic or top rate of income tax during this Parliament.

The move represents a clear break with the Blair years and the New Labour emphasis on rewarding economic success. The top rate of tax has been at 40p since Nigel Lawson cut it from 60p back in 1988.

Mr Darling told the Commons that the UK economy will contract by 3.5 per cent this year, making the current recession the worst since the Second World War. But he said that he expected economic growth to resume by the end of this year and to see growth next year of 1.25 per cent - more bullish than current market forecasts.

He said that the UK economy contracted by 1.6 per cent in the last quarter of 2008 and declined by a similar amount in the first three months of this year.

"But because of our underlying strength, the measures we are taking, domestically and internationally, I expect to see growth resume towards the end of the year," he added.

"The IMF forecasts published today confirm the problems that all countries will face this year. But they also show that the British economy will suffer less than Germany, less than Japan, less than Italy, and less than the euro area as a whole this year. The British economy is diverse, flexible and resilient - which is why we can be confident in recovery."

Mr Darling announced a £3 billion package of measures to help the jobless back into work and prevent those who lose their jobs becoming long-term unemployed. He also announced £1 billion in funding to help fight climate change, £2.5 billion to help businesses invest in high-technology jobs and £500 million to kickstart stalled housing projects.

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