ALISTAIR DARLING drew the battlelines yesterday for the next election when he slapped a 50p tax rate on high earners – while admitting that Britain was in the deepest recession for 60 years.

The Chancellor sprang a surprise by announcing the top rate for those earning more than £150,000 would be higher than the 45p already planned and take effect from next April – one year early.

With the 50p rate likely to be in place before the next General Election, expected in May next year, the move was designed to create a clear “dividing line” with the Conservatives.

Tim Porter, tax partner at PricewaterhouseCoopers LLP in Newcastle, forecast that Mr Darling’s tax and incentive measures – designed to stimulate the economy – may not have gone far enough.

And he warned that increases in income taxes could make the region a less-attractive location for the entrepreneurial businesses needed to kick-start the economy.

But Nick Brown, Minister for the North-East, said: “The Government’s number one priority is to provide support and real help to people now.

“That is why we are focusing our support on jobs, homes and families, ensuring that we build for recovery and plan for the low-carbon economy that we all want for Britain’s future prosperity and growth.

“No region will be left behind.”

Last night, the Tories said that reversing the rise would “not be a priority”. Keeping it in place will horrify the party’s rank-and-file.

The 50p rate triggered warnings of “a Seventiesstyle brain drain” if top-earners flee abroad, but Mr Darling said that, with tax rises inevitable, those “who have gained the most should contribute more”.

However, the tax rise, plus further pain for high-earners who will lose all personal tax allowances and some pension tax relief, failed to distract attention from the desperate state of the economy.

Mr Darling tore up optimistic predictions made in November to admit the economy would shrink by 3.5 per cent this year – more than three times the one per cent forecast then.

Public borrowing will soar to a record £175bn in the current year – or 12.4 per cent of economic output – because of a toxic combination of falling tax receipts, higher spending and the cost of bank bail-outs.

Total government debt will soar to £1.2 trillion, reaching a historic high of 79 per cent by 2013-14 – double the Government’s now-abandoned ceiling of 40 per cent.

The Budget came only hours after it was revealed that the number of people looking for work had reached 2.1 million – its highest level since Labour came to power in 1997.

Mr Darling’s predictions that growth would return by the end of the year, and reach 3.5 per cent in 2011, were quickly condemned as wildly optimistic by the Conservatives and many experts.

The Chancellor struck a surprisingly upbeat note, insisting that – despite the deepest recession since the Second World War – there were “good grounds for confidence”.

He told MPs: “This Budget will build on the strengths of the British economy and its people, speed the recovery, providing jobs and spreading prosperity.”

But Tory leader David Cameron said the Budget had laid bare the “fundamental truth that all Labour governments run out of money”.

He said: “The last Labour government gave us the Winter of Discontent, this Labour government has given us the Decade of Debt. The last Labour government left the dead unburied, this one leaves the debts unpaid.”

Mr Darling said his package would “protect investment in schools, hospitals and other key public services”, but growth in spending will shrink to 0.7 per cent in three years’ time.

That painful squeeze will starve the NHS of £2.3bn a year, schools of £600m and universities and skills of £300m, according to the Budget small print.

Duty on alcohol rose by two per cent from midnight, putting 1p on a pint of beer.

Fuel duty will increase by 2p a litre in September and then by 1p a litre above inflation each April for the next four years. Tobacco duty rose by two per cent last night.

Nearly all the spending announcements were trailed, including a “cash for bangers”

scrappage scheme offering a £2,000 incentive to trade in a car more than ten years old for a new model.

The £300m scheme – designed to kick-start the ailing car industry – is expected to help 30,000 motorists, but green groups were angry that owners will not be required to buy a low-polluting car.

As expected, Mr Darling announced a £1.7bn scheme to create 250,000 jobs and ensure young people hit by the recession are not abandoned to become a “lost generation”.

He found £250m for colleges and school sixth forms hit by a funding gap that threatened to leave many teenagers without a place this September.

And there was an extra £200m for college rebuilding projects, which may offer hope to those put on hold in Hartlepool, Stockton, South Tyneside, Darlington and Gateshead.

There were significant green measures, including financial backing for up to four schemes to capture carbon from power plants, instead of only one.