The Government needs to raise taxes by £8 billion, or £250 for each family in the UK, to meet its own targets on public finances, a respected economic think-tank said yesterday.

The Institute for Fiscal Studies (IFS) said one way the Government could raise the money would be to reverse its much-heralded decision to cut the basic rate of tax.

From April, the basic rate of tax is set to fall from 22 per cent to 20 per cent. Carl Emmerson, deputy director at the IFS said: “The Government will be reluctant to raise taxes because of concerns about the economy and also for political reasons - after all, it's much easier to cut taxes than to raise them.”

In its annual Green Budget the IFS warned that if the Chancellor did not change course, public sector net debt would breach the Government's own threshold of 40 per cent of GDP in 2009, reaching 41.2 per cent by 2012.

Mr Emmerson said: “The Government needs to act in the upcoming budget. If it doesn't announce more tax-raising measures, it will break its own rules.”

The IFS predicted that Government borrowing would top £40 billion in each of the three coming years, putting Alistair Darling at risk of breaking the “golden rule” of balancing the books over an economic cycle.

And it suggested that state support for Northern Rock could add £100 billion to net debt - 7 per cent of national income - if the Office for National Statistics ruled that it must be included on the Government books or if the Government nationalised it.

This would easily breach the 40 per cent ceiling set by Gordon Brown, the report said. However, it added that the eventual impact of Northern Rock would be much smaller once its mortgage book was sold.

It urged the Government to produce two sets of public finance figures, excluding and including Northern Rock, to make the cost of propping up the ailing bank clear.

The report warned that tax revenues may not grow as strongly as hoped by an “over optimistic” Treasury - because of the credit crunch, lower profit growth on corporation tax and lower stamp duty income because of falling property and share prices.