The Treasury is to abandon its golden rule on borrowing as it prepares to spend its way out of the current economic difficulties.

In his pre-Budget report, chancellor Alistair Darling said that rigidly applying the rules in the current climate would be “perverse and damaging”.

"We would have to take money out of the economy, making a difficult situation worse."

Instead, there will now be a temporary operating rule that would allow the government to deal with the “unprecedented global crisis".

By adjusting the cyclically adjusted current balance of over 0.5 per cent a year from 2010/11 the government would return to current balance and debt falling as a proportion of GDP by 2015/16.

Darling's economic forecast predicted a contraction of the economy in the first two quarters of 2009, followed by a recovery "because of decisions taken in this Pre-Budget Report".

Nevertheless the government, Darling said, would have to deal with falling tax revenues.

"This all means that borrowing will be significantly higher than forecast," the chancellor told MPs, to £78bn this year and £118bn next, or 8.0 per cent of GDP.

But from 2010, when the Treasury predicts that the recovery will begin, borrowing would be reduced again to £105bn, £87bn, £70bn and £54bn until there is only borrowing to invest by 2015/16.

Shadow chancellor George Osborne later warned MPs that the plans would see national debt double to £1tn.

"The chancellor has just announced the largest amount of borrowing ever undertaken by a British government in the entire history of this country," he said.

Darling said there would also be further changes to the regulatory system controlling banking service, led by the chairman of the Financial Services Authority.

The chancellor has also asked for a review of the way overseas territories and crown dependencies, such as the Isle of Man and the Channel Islands, were regulated.

The government has so far refused to compensate those who have lost deposits in tax free accounts on the islands.

Darling told MPs that the UK had taken the lead at the European Union to look at international compensation arrangements after British bakers using the Icelandic bank Landsbanki had to be guaranteed by the government.

Both reviews are expected to report in the Spring.