There are fears that Gordon Brown will raise taxes

NAO Report Reveals Budget "Black Hole"

Commissioning the report was one of Mr Brown's first acts as Chancellor. It will fuel speculation over next month's budget announcement, and it's thought the Chancellor will use the report to blame over-optimistic claims by the former government based on unrealistic assumptions about the economy.

Mr Brown said: "Budgets must be built on honest foundations. This is the only way to restore public trust in the public finances."

The National Audit Office has focussed its analysis on the Conservative government's assumptions about unemployment, economic growth and interest rates which were used to forecast tax revenues and public spending.

Former Chancellor Kenneth Clarke's upward revision of the growth rate from 2.25% to 2.5% a year will come under particular attack. Also in the spotlight will be savings the last Government said could be made by clamping down on fraud and tax evasion.

The report gives Mr Brown ammunition to fight off Ministers who want more spending from him, and to increase taxes in the July 2 Budget.

Earlier this week Mr Clarke decried the NAO as an inappropriate body to carry out the review. "It has always been clear the Labour party was going to use the NAO to fiddle the figures and give them an excuse to break the promises they have made on tax and spending" he said.

On Wednesday, leading economists called on Mr Brown to raise taxes in the Budget to curb the growing consumer spending boom. They were reacting to official figures showing that the growth of spending on Britain's high streets had surged to its highest level for nine years. Economists recommended tax rises rather than an increase in interest rates, to avoid penalising the business community.