Exceptionally weak tax revenues in October raised government borrowing to its highest level in that month for 14 years, with no signs that the public finances will improve for the foreseeable future.

Data on Wednesday revealing the first public sector deficit since 1994 put further pressure on the government to spell out in next Monday’s pre-Budget report how it plans to restore public finances in the medium-term

October is usually a good month for the Treasury, because one of the four quarterly instalments of corporation tax is collected, but last month the government borrowed £1.4bn, the first deficit since 1994.

More worrying than a single month’s data for the government is that in the first seven months of the 2008-09 financial year, public sector net borrowing stood at £37bn, compared with £20bn for the same period of 2007-08.

At the current rate of decline, the full year deficit will hit £68bn, or around 4.5 per cent of national income, far in excess of the government’s Budget forecast of £43bn. It would constitute the biggest deficit, relative to the size of the economy, since 1994-95.

“The outlook for the public finances over the next three years also seems very bleak,” said Gemma Tetlow of the Institute for Fiscal Studies.

She added that the parlous state of the public finances, “underlines the need for the Government to accompany any short-term giveaway to boost the economy in Monday’s Pre-Budget Report with measures to reassure people that the public finances will be strengthened again once the economy stabilises”.

The weakness in corporation tax revenues was underscored by the Office for National Statistics, which said that although total revenues in October at £9.6bn were as high as in 2007, within the total the proportion of revenues coming from the North Sea doubled to £4bn.

With North Sea revenues about to dwindle as oil prices have plunged, non-North Sea revenues have already declined by a quarter from about £7.6bn to roughly £5.6bn.

The Treasury is also braced for the trends in the public finances to deteriorate for the rest of this financial year and get much worse next year, even before it contemplates cuting taxes and raising spending in Monday’s pre-Budget report.

Its monitoring of independent forecasters shows that in November, the average new prediction for the public finances was for public borrowing to rise to £90bn or roughly 6 per cent of GDP in 2009-10.

The IFS yesterday projected that if the Bank of England’s forecast for a deep recession materialised, borrowing would rise by another 4 per cent of GDP in 2010-11, suggesting that the total could climb to over 8 per cent of national income compared with this year. This would be worse than the 1990s recession and a level of borrowing not seen since the mid 1970s, just before the Callaghan government was forced to seek external finance from the International Monetary Fund.

Michael Saunders of Citi said that if the Treasury plumped for a large fiscal stimulus, the deficit could easily rise to 10 per cent of GDP, “a level rarely seen in major industrial countries”.

“There may be a valid case for temporary fiscal stimulus during recession, but it is very important that the Chancellor accompanies this with a new and credible framework to ensure a medium-term return to fiscal sustainability,” he added.