Chancellor Alistair Darling is believed to be considering putting limited tax cuts in his pre-Budget report later this month. The cuts would be paid from even higher levels of borrowing, but ministers believe this is justifiable if it prevents a full-scale depression in 2009.

Tax cuts would form the final part of a three-pronged Government strategy to limit the depth and length of the downturn – alongside cuts in interest rates and a speeding up of Government building projects.

Ministers hope that, in combination, the moves may limit a surge in unemployment, which economists fear would trigger a devastating depression across the country.

Last week, a report by the European Commission warned that among the EU's largest economies, the UK would be the worst performer next year, when its economy would contract by 1%. It predicted private consumption across the UK would fall in 2009 and 2010.

Darling won a victory last week after persuading the major banks to pass on the 1.5% cut in interest rates announced by the Bank of England. People with a mortgage of £150,000 can expect to see cuts of £138 in their monthly payments.

SNP Finance Secretary John Swinney is now also to urge banks to help small and medium-sized enterprises weather the global downturn. In a letter to RBS, HBOS, Lloyds TSB and the Clydesdale Bank, the Cabinet Secretary for Finance and Sustainable Growth calls on the banks to look to use all possible sources of funding and pass on benefits to businesses.

Swinney said: "Small and medium-sized businesses are consistently telling me that access to finance is one of the biggest challenges they face. I accept that worldwide conditions are also creating new, unforeseen and pressing problems for banks.

"But if we are to ensure companies are not just able to survive the downturn, but to grow and help our economy emerge stronger than it was before, then we all need to work together."