Big challenge for Darling

Chancellor Alistair Darling was today faced with producing an austerity Budget against a background of a soaring jobless toll and massive Government debt which will mean future tax increases.

Figures released just hours before Mr Darling presented his Budget to the Commons, showed the jobless toll has risen to 2.1 million, and public sector borrowing at £90 billion.

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The figures for the last financial year are ahead of earlier Treasury forecasts.

But there was one crumb of comfort for the Chancellor from today's figures – mortgage lending rose by 16 per cent last month, an indication that the housing market may be slowly beginning to revive.

Before going to the Commons, Mr Darling told an anxious meeting of the Cabinet at 10 Downing Street that he would be producing a "Budget for jobs".

He outlined proposals which will include a £2.5 billion package designed to prevent tens of thousands of young people spending years on the dole.

There will be immediate tax increases in the hardy annuals like alcoholic drinks, tobacco and some motoring costs.

But most of the pain will be saved up for 2010 and beyond when the Chancellor hopes Britain will be emerging from the worst recession since the second world war – and Labour could be out of office.

Revealing borrowing figures which will be mind-boggling for most of the public, Mr Darling has to convince the financial markets that he is prepared to take the tough measures on spending cuts and tax increases to steady the battered British economy.

His jobs package will guarantee work or training for every young person under-25 who has been out of work for a year.

Other measures, including a long-awaited car and van scrappage scheme offering £2,000 to motorists getting rid of their old vehicles, were expected.

Mr Darling was also announcing a range of measures designed to boost housing, including an extension of the stamp duty holiday for homes costing up to £175,000.

But pensioners could take another hit with Treasury hints that people on high salaries will face a cut in tax relief on pension contributions.

By London Editor John Hipwood