The impact of the credit crunch on UK’s tax revenues is threatening to plunge UK’s coffers £16bn deeper into the red over the next two years than Chancellor Alistair Darling has envisaged.

Calculations for The Times newspaper by the National Institute of Economic and Social Research reveal the toll on tax receipts will aggravate the ‘acute financial headache’ already facing Alistair Darling.

As the general election approaches the chancellor finds himself already hampered by the country's deepening slide into the red, leaving him with little room to move for pre-election sweeteners or extra tax and spending measures.

The institute estimates the extreme economic and financial impact from the credit crunch will force the chancellor to borrow an additional £8bn in the current financial year and £8bn more in 2009-10. The £16bn deficit will add almost 4p to the basic income tax rate.

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