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HM Treasury now facing a black hole of up to £16bn in its finances this year, a leaked document has revealed.
The briefing – which was marked "sensitive" – also showed an extra £700m bill from a 25.9 per cent hike to Britain’s contribution to the EU.
Obtained by Labour, it blamed a "severe worsening in the public finances" on the failure of tax returns to come in at the level expected.
It was seized on by shadow Chancellor John McDonnell as evidence of the "Tory failure on the economy", ahead of a crucial autumn statement to "reset" policy next month.
Mr McDonnell said: "It refers to a run of disappointing data and the unlikelihood of getting deficit reduction back on track, officially confirming the Tory failure on the economy.
"Now we’ve had it from the official civil servants, it’s time the Tories came clean.
"They should drop the spin and admit the truth – they are failing on the public finances and working people are paying the price."
In George Osborne’s March 2016 Budget, he pencilled in a £20bn fall in borrowing to £55bn in the current financial year – after repeatedly failing on his borrowing targets in the last Parliament.
But the document says borrowing has been higher than expected, stating: "Six months in, the deficit is only £2bn lower than in the same period a year ago."
Borrowing was actually higher year-on-year in September, part of a "continuing a run of disappointing data".
"For the year to date, the deficit is £2.3bn lower than last year; at a fall of 4.8 per cent, well behind the 27.0 per cent reduction forecast," the document said.
Tax receipts are "back-loaded", so should pick up as the year progresses, but are "unlikely to bring deficit reduction entirely back on track".
It added: "Media commentators are likely to double the effect on borrowing for the year-to-date as we are now halfway through the year, which would imply a severe worsening in the public finances.
"For instance, this would imply overshooting the PSNB forecast for 16-17 by £15.9bn."
Chancellor Philip Hammond has insisted that, although the Government will not now seek a Budget surplus by 2020, it remains "committed to fiscal discipline".
The document was issued to officials but apparently posted on the Government’s website in error.
A Treasury spokesman said: "The Chancellor has been clear that, while the deficit has been cut, it is still too high.
"The Government is committed to balancing the books over a sensible period of time, in a way that allows space to support the economy."
The Treasury also flatly denied EU budget increases in the leaked document were related to the referendum result.
A spokesman said: "The EU asked for a smaller share of our total 2016 contributions in the first three months of the year than in previous years.
"Our total contribution for the year is not affected, as the OBR [Office for Budget Responsibility] set out in their March forecast."
*** Independent
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