The Chancellor will reportedly announce the need for tax rises and a reduction in public spending in his pre-budget report.

According to reports, Alistair Darling will warn that as a result of short-term emergency tax cuts, the public sector will experience several years of a rigid economy after it emerges from its current recession and that in the long term, taxes will have to rise.

Treasury sources say that spending plans for the current three-year spending round will not be changed, therefore public spending will continue to grow at around 2 per cent a year until 2011.

But after this period, the Government will try to restore the public finances, meaning a squeeze in public spending.

The speculation surrounding Mr Darling's report comes as the opposition seized on a think-tank report that predicted the Government's deficit will mean eventual tax rises of £100 billion, or £4,000 per household.

Philip Hammond, the Shadow Chief Secretary to the Treasury, said: "This report paints a bleak picture of the state of Britain's finances after ten years of Gordon Brown's economic mismanagement."

But Mr Darling recently said the Government was right to borrow in order to put money into an otherwise sluggish economy.

"It is right to let borrowing rise," he said. "We are going into recession. That doesn't mean the economy can't come through it.

"The Bank of England expects the economy to come back out of it in 2010. I think things are difficult but I remain confident that we will get through it."

© Independent Television News Limited 2009. All rights reserved.