The UK government yesterday unveiled plans to raise the top tax rate to 50 per cent and massively increase borrowing to bolster public finances, which are in their worst state since the second world war.

In his annual Budget speech, Alistair Darling, finance minister, forecast the economy would contract by 3.5 per cent in 2009 although he expected growth to resume “towards the end of the year”. The economy would then expand by 1.25 per cent in 2010 and at an annual rate of 3.5 per cent from 2011.

These forecasts are more optimistic than the market's consensus and the International Monetary Fund's estimates. Mr Darling raised taxes on the rich. The top rate will rise from 40 to 50 per cent for those earning more than ￡150,000, higher than the 45 per cent rate foreseen in last November's pre-Budget report. The tax rise will start in 2010 – a year earlier than planned.