Gordon Brown admitted today that he and Alistair Darling did consider an increase in VAT to 18.5 per cent as a possible way of plugging the gap in Britain's finances.

The move was considered along with a whole spectrum of ideas, the Prime Minister told MPs today. But he said it was rejected because “hard pressed families were hurt” by such a measure when it was taken by Conservative administrations during previous recessions.

He dismissed claims from David Cameron at Prime Minister's Questions today that the Government was plotting to impose a rise in VAT after the next election, and accused the Tory leader of having nothing to offer as an alternative rescue package for Britain.

“I’m sorry I have to give him an economic lecture every week because he doesn’t understand,” Mr Brown said, mocking the leader of the Opposition.

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“He is the do nothing leader of a do nothing party.”

It emerged last night that a plan to increase the sales tax by 1 per cent was considered in depth by the Treasury ahead of this week’s Pre-Budget Report before being rejected.

A Treasury briefing paper, published mistakenly on the Office of Public Sector Information website, revealed that a plan to increase VAT to 18.5 per cent in 2011-12 was drawn up for ministers as they reached the final stages of PBR consideration.

The Times understands that the option was considered as late as last Friday night by ministers, but then rejected.

Instead, the government used the PBR to cut the rate of VAT from 17.5 per cent to 15 per cent from December 1 for 13 months at a cost of £12 billion. Thereafter it will revert to the 17.5 per cent rate.

The briefing paper said: “The proposed changes will reduce VAT to 15 per cent from December 1, 2008, until the end of 2009. The standard rate will then return to 17.5 per cent from January 1, 2010, and subsequently increase to 18.5 per cent in 2011-12.”

Mr Cameron suggested to MPs today that the Government may still introduce the VAT increase, as it seeks to raise revenue to pay for the fiscal stimulus introduced by the Chancellor on Monday.

“If the Government doesn’t have a secret plan to increase VAT, why has the Treasury Secretary put his signature on it?” he asked.

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