Increased borrowing and higher taxes are all part of Alistair Darling's plan to pump £20 billion into Britain's economy in a bid to avoid recession.

The Chancellor confirmed a temporary cut in VAT from 17.5% to 15% from December 1, but with the other hand announced hikes in the duties on petrol, alcohol and tobacco.

In his Pre-Budget Report, he insisted the reduction was equivalent to the Government giving £12.5 billion to consumers. VAT rates will return to 17.5% in 2010.

There was also a boost for pensioners, and families with children, with Mr Darling announcing an increase in child benefit in January, three months early. Every pensioner will get a one-off payment of £60, on top of the £10 Christmas bonus, also from January.

Help was granted to small firms, with rate relief on empty properties and extra time to pay their tax bills.

The Chancellor announced that £3 billion of capital spending on the motorway network, new social housing, renewing schools and energy efficiency measures will be brought forward from 2010/11 to this year and next.

He also outlined a new 45% income tax rate from 2011 for those earning more than £150,000, and a phasing out of personal allowances for those on more than £100,000.

But 0.5% increases across the board in both employers' and employees' National Insurance contributions were also revealed and Treasury officials said all families earning more than £40,000 a year would be hit by the report.

They said those on between £40,000 and £100,000 would be an average of £3-a-week worse off by 2011, contributing half a billion pounds to replenishing the national coffers.

Mr Darling said public borrowing was going to rocket to £78 billion this year and £118 billion the following year.

The Chancellor said Prime Minister Gordon Brown's old fiscal rules restricting borrowing and spending would be temporarily scrapped, with the UK officially entering recession.

Mr Darling predicted that the economy would shrink next year by between 0.75% and 1.25%, but would then bounce back in 2010 with positive growth of 1.5% to 2%.

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