Britain will spend billions of borrowed pounds to fund tax cuts in the hope of preventing a recession spiralling into a slump but warned taxes would have to rise later to pay for the boost.
Chancellor Alistair Darling told parliament on Monday he would cut sales tax and extend help for small businesses, low earners and households in a package worth up to 16 billion pounds, or just over 1% of gross domestic product.
But he said tax cuts now would mean rises later, including an increase in income tax for high earners, deferred until after the next election.
The top rate tax will rise to 45% and all National Insurance contributions will go up 0.5% from 2011.
The move is a major policy shift for the Labour government and would mark the first time that income tax has been raised since 1975.
"These are extraordinary, challenging times for the global economy. And they are having an impact on businesses and families right across the world," Mr Darling said.
Britain is sliding into recession, house prices are tumbling, unemployment rising and manufacturing output shrinking.
To pay for the moves Mr Darling said Britain's public borrowing would balloon to around 118 billion pounds in the next financial year, about 8% of GDP, well above the 38 billion pounds he forecast in March.
The chancellor's fiscal boost is being matched, in some shape or form, across much of the world as the global economy sours.
The European Commission will present plans on Wednesday to boost the EU economy, and U.S. President-elect Barack Obama has laid the ground for a massive new US stimulus package, combining middle-class tax cuts and infrastructure spending.