Since Britain is not a member of the euro zone, it can be relatively relaxed about slaps on the wrist from the European Commission. However, Brown has staked his reputation on his management of public finances and the political cost of breaking his own rules could be high.

With the economy set to slow markedly over the coming year or two, the outlook for the public finances looks bleak.

Weaker profits growth will hit corporation tax receipts, softer retail sales will hurt value-added tax and a housing market downturn will severely curb revenues from stamp duty.

Research published by the Financial Times newspaper this week showed the credit crunch would lop 2.5 billion pounds off the combined corporation tax bills of the Royal Bank of Scotland, HBOS and Lloyds TSB.

The Treasury cut its projection for corporation tax receipts in March by 3 billion pounds in total but its forecasts still look optimistic, hinging on growth of around 2 percent this year.

The consensus of private economists is for 1.7 percent and the International Monetary Fund is forecasting growth of no more than 1.6 percent.

The government announced an efficiency drive this week to save up to 5 billion pounds of public money. But more may need to be done.

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