LONDON (Bloomberg) — Chancellor of the Exchequer Alistair Darling said he plans to increase borrowing to £78 billion ($118 billion) this fiscal year and £118 billion in the next as the global financial crisis ravages government finances.

The budget deficit for the year through April 2010 amounts to eight percent of UK gross domestic product, Darling said yesterday in his pre-budget report to Parliament.

The increase will finance a package of tax cuts and spending projects to limit the damage wrought by the worst financial crisis in almost a century.

Darling says the stimulus is needed to prevent a deep and protracted recession, and has signalled the need for tax increases once the slump is over to curb borrowing.

"I want to take fair and responsible steps to protect and support businesses and people now," Darling said. "My central objective is to respond to the consequences of this global recession on our country."

The Treasury is losing revenue as the seizure in credit markets deepens the housing slump and pounds the earnings of financial firms, which contribute a quarter of all taxes from company profits. Spending on welfare is rising as unemployment climbs.

Darling said the economy will shrink as much as 1.25 percent in 2009, the most since 1991. In March, he saw economic expansion accelerating to as much as 2.75 percent.

Opposition parties say the surge in borrowing will lead to sharp tax increases and push up long-term interest rates. Conservative leader David Cameron last week said his party would avoid higher taxes by slowing the pace of spending growth from mid 2010, the latest Brown can hold a general election.

On November 3, the European Commission forecast a UK budget deficit of 5.6 percent of gross domestic product in 2009 and 6.5 percent in 2010, more than double the three percent European Union limit. Only the US will see higher rates of borrowing in the Group of Seven, the Brussels-based executive said.