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Alistair Darling read the last rites over new Labour yesterday by saddling Britain’s highest earners with a new 50 per cent tax rate as he struggled to dent a £1.4 trillion mountain of debt.

About 350,000 people who earn more than £150,000 a year face a triple hit of charges. Their top rate of tax will rise from 40 per cent to 50 per cent next April; their personal allowances on which they currently do not pay tax will be wiped out; and their tax relief on pensions will be reduced to 20 per cent. On average they will be £80 a week worse off.

A further 750,000 people who earn more than £100,000 will lose their personal allowances and be about £40 a week worse off.

Budget 2009: A step-by-step guide

Alistair Darling has revealed the steps he believes will drag Britain out of the worst economic slump since 1946

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BACKGROUND

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• Wealthy pension investors hit

• David Cameron bites back at 'fictional' Budget

• Budget 2009: speech in full

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The Chancellor’s 51-minute Budget speech was marked by the worst economic figures in peacetime. MPs gasped as he reeled off a list of eyewatering numbers, most shockingly that Britain’s debt will amount to 79 per cent of GDP in 2013-14, at £1.4 trillion, and that borrowing over the next two years will total £348 billion, and £703 billion over five years.

The plunge into the red comes as tax revenues tumble. Two or three general elections may have passed before the finances are back in balance.

Even yesterday’s figures were based on a gamble. Mr Darling forecast that although the economy will contract by 3.5 per cent this year – far worse than expected – it will start growing again towards the end of the year, expand by 1.25 per cent next year, and rise to 3.5 per cent in 2011.

The predictions were dismissed as overoptimistic by the City and dishonest by the Conservatives.

Within minutes of Mr Darling sitting down the International Monetary Fund had issued contradictory forecasts that the economy would be worse this year (a contraction of 4.1 per cent) and that the slump would continue into next year (minus 0.4 per cent). Its consolation for Britain was that Germany, with a 5.6 per cent slump, and the eurozone, with a drop of 4.2 per cent, would do worse.

Mr Darling predicted that borrowing would be halved within four years but added that deflation would hit minus 3 per cent by September.

David Cameron said that any claim that Labour had to economic competence was “dead, over, finished”.

The richest 2 per cent of the working population will bear the brunt of measures, which included a fiercer than expected assault on public spending, designed to show that somehow over eight years – two years longer than expected – Britain’s finances might get back on course.

The income tax rises will come in at the start of next year’s general election campaign, assuming that Gordon Brown goes to the country on May 6, local elections day.

For three elections Labour’s flagship manifesto pledge has been not to raise the basic or top rates of tax. Mr Darling has broken it because he felt that it was right for the better-off to shoulder the burden, but Labour’s claim to be the party of aspiration will suffer. Yvette Cooper, the Treasury Chief Secretary, said it was the right response to “exceptional circumstances”.

The 50 per cent rate replaces the 45 per cent level announced in November’s PreBudget Report and will come in a year earlier than planned. Spotting an obvious trap, the Tories will not commit to reversing it but will instead try to avoid implementing the 0.5 per cent rise in national insurance still in pipeline from the PreBudget Report at the end of last year.

The tax rises were clearly designed to appeal to core Labour voters at a time when the public sector is being squeezed.

Total government spending, which in November was planned to rise at an average pace of about 1.1 per cent a year after inflation from 2011 to 2013, is now slated to fall in real terms, by 0.6 per cent, in 2011-12 and remain broadly flat thereafter. That means cuts of billions beyond the £15 billion already sought in efficiency savings.

Petrol will rise by 2p a litre in September and then by 1p a litre above inflation in each April for the next four years. Alcohol and tobacco duties went up by 2 per cent from last night.

The main Budget measures, including the efficiency savings, will not bite fully until 2011. Mr Darling said that acting any earlier would damage the prospects for recovery.

“At this stage, when there is so much uncertainty, to do so quicker would prevent us helping people now, choke off the recovery, and stop us investing for the future,” he said.

There was £1.7 billion of help for the unemployed. Anyone under 25 who has been out of work for 12 months is guaranteed a job or training place.

There will be £500 million in extra support for the construction industry to revive housing projects. The stamp duty holiday on properties under £175,000 will remain until the end of the year.

A scrappage scheme will help the motor industry. Motorists are offered a £2,000 discount to trade in cars more than ten years old for new, more environmentally friendly models.

Overall tax payments this year are expected to be down by more than 9 per cent from 2007-08 and £40 billion down on what was expected in November. At the same time, the bill for social security is set to rise by £32 billion between 2008 and 2010.

Economists warned that, with tax revenues plunging rapidly, if the Chancellor’s buoyant forecasts for economic recovery prove overoptimistic the gap between tax receipts and spending could reach as much as £230 billion, or 16 per cent of national income.

Spiralling deficits on that scale could risk a run on the pound and a market panic that could leave the Treasury struggling to sell the government bonds, or gilts, it needs to cover borrowing.

The head of the Treasury’s Debt Management Office, the body charged with selling gilts to investors, admitted that he could not rule out some of its auctions of the bonds failing as the value of the Government’s fundraising increases. The Treasury now expects to have to raise £220 billion of cash in 2009-10, a record amount, well above the expected figure of £180 billion and 50 per cent up from last year.

Mr Cameron said that it was the Budget of a government “running out of money, running out of moral authority, running out of time”.

“Today everyone can see what an utter mess this Labour Government and this Labour Prime Minister have made of the British economy,” he said.

Nick Clegg, the Liberal Democrat leader, condemned Mr Darling’s failure to tackle the unfairness of the tax system. “This Budget is a political supermarket sweep,” he said. “A trolleyful of rambling policies without even a plan or any real likelihood the policies will be put into practice.”

The big numbers

£5.2bn

Extra revenue expected by the Exchequer in 2011-12, of which almost £3.6 billion is from just two measures: increases in fuel tax and the new 50p top rate of tax

£42.9bn

The amount the Government will spend on debt interest in 2010-11 is bigger than the schools budget

£1.4tn

National debt to double to this, which the Tories say will mean every child born owing £22,500

£14.7bn

Tax receipts will be £14.7 billion lower than estimated last autumn in 2008-09 and £39.4 billion lower in 2009-10

48%

Public spending is set to fall from 48 per cent of national income to 39 per cent in 2017-18

91%

Percentage of the cost of every packet of cigarettes that will be tax

Source: Times research

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