Annual public borrowing is set to rocket towards £120bn over the next two years – far higher than City forecasts – forcing Alistair Darling to announce plans for deferred tax rises and public spending curbs when he presents his pre-Budget report next week.

Treasury officials say the “mammoth shock” to the economy will cause tax revenues to fall far below previous government forecasts, even before the chancellor announces what is promised to be a “decisive” temporary fiscal stimulus.