Osborne: Santa giveaway ... paid for by taxes for life

He launched a stinging attack on Gordon Brown and Chancellor Alistair Darling's bid to spend their way out of a painful and deep recession.

"The Chancellor has just announced the largest amount of borrowing ever undertaken by a British government in the history of this country," he told MPs.

"What he did not admit is that he is going to double the national debt to one trillion pounds. And that a national debt that has accumulated over centuries he is going to double in just five years."

He blamed the huge extra spending on "Labour's decade of irresponsibility initiated by this Prime Minister".

He added: "And to pay for it he has placed a huge unexploded tax bombshell timed to go off underneath the future economic recovery Stability has gone out of the window. Prudence is dead. Labour has done it again. Massive borrowing. Rising unemployment. Tax giveaways for Christmas paid for by tax rises for life."

As the Prime Minister and the Chancellor embarked on the biggest gamble of their careers, tax returned with a vengeance as the dominant political issue.

More than 16 years since the Tories clinched the 1992 general election on the back of their "tax bombshell" campaign against Neil Kinnock, Mr Osborne and Tory leader David Cameron are hoping to capitalise once more on the perception that Labour cannot help penalising success.

The Conservatives unveiled a new version of their famous propaganda blitz, with posters and leaflets at London's train stations.

Even before the shock announcement of a 45p higher rate for those earning more than £150,000 a year, the Tories had been preparing their campaign with warnings that every family will pay heavily in the long term for today's pre-Christmas borrowing and spending binge.

On one estimate, every family will pay nearly £10,000 for the Chancellor's £16  billion "fiscal stimulus".

Mr Cameron today told the CBI that cutting interest rates and freeing up credit would do much more to help the economy than unfunded tax cuts.

He also hinted that the money markets may scupper Labour's plans by making it harder to cut interest rates.

Tory modernisers, however, worry the higher tax rate will force the party into its traditional image of defending the rich or offering to slash public spending.

The pre-Budget report will be seen as the first shots of the 2010 general election campaign. In a direct attack on Mr Cameron's approach, Mr Brown warned the CBI today: "To fail to act now would not only be a failure of economic policy, but a failure of leadership."

By increasing borrowing to £120 billion and breaking his vows on not raising income tax, Mr Brown tore up the rule book to stake his political future on his economic leadership.