Philip Hammond, Shadow Chief Secretary to the Treasury, said: “This report underlines the parlous state of the public finances and shows how poorly prepared Britain is for the economic slowdown.

“The report’s prediction of higher Government borrowing, collapsing stamp duty receipts and lower than projected growth next year are the latest manifestations of Gordon Brown’s economic incompetence.”

If Britain does face a recession, then economists warn that raising taxes to fill the black hole would risk turning any downturn into a catastrophic slump.

Cutting public spending would also be likely to push unemployment up in the short term.

Instead Mr Darling is likely to increase Government borrowing – but that will crush hopes of a cut in interest rates as well as potentially fuelling inflation.

Going on a credit binge to pay public sector salaries is also almost certain to mean Labour having to toss out Mr Brown’s much-vaunted “golden rule” of “prudently” only borrowing to pay for investment.

Vince Cable, the Liberal Democrat Treasury spokesman, warned that the economy was now facing a “prolonged crisis”.

The only good news for Mr Darling is that soaring global oil prices will mean an extra £4.5billion in taxes from the North Sea.

But in another blow, it emerged yesterday that the Treasury has now handed over £5.3billion to Northern Rock.

The money represents a loan originally made by the Bank of England when the crippled mortgage lender ran out of cash.

And European finance ministers yesterday piled pressure on Britain to clear up the gap between what the Government spends and what it raises in tax.

EU rules limit deficits to 3 per cent of the total economy – but  the UK is on track to have a 3.3 per cent deficit.