* What: Britain's pre-budget report
* When: Monday, November 24
* Labour government to launch economic stimulus package
By Matt Falloon
LONDON, Nov 21 (Reuters) - Britain's Labour government is expected to deliver an expensive shot into the arm of the economy next week in a gamble to stave off a prolonged recession and boost the party's recovering popularity.
Its annual pre-budget report on Monday is likely to contain tax breaks, help for households and small businesses and more state efficiency savings as part of a fiscal stimulus package, according to political insiders, economists and media reports.
Speculation centres on a stimulus of one percent of GDP -- 15 billion pounds ($22 billion) -- and some experts forecast more after a summit of world leaders this month called for fiscal spurs to take "rapid effect" in the face of the worst financial crisis in living memory.
But there are growing concerns about how much is needed to fund the life support plan, and whether burgeoning debt levels will hamper recovery and damage Britain's fiscal credibility.
"Britain has effectively ditched its fiscal rules and arguably has a more adverse fiscal background than all of its G7 peers," said Philip Shaw, chief economist at Investec.
"Moreover, the day of reckoning will eventually come, when the authorities will have to deal with the huge shortfall."
Public sector net debt this year has already hit its highest running total since records began in 1946 and the public finances are expected to deteriorate further as a weakening economy drives down tax receipts and raises welfare payments.
Finance minister Alistair Darling will have to slash his growth forecasts to reflect a much-altered picture since March, when he saw growth around 2 percent this year and 2.5 percent in 2009. The economy shrank 0.5 percent in the third quarter and is expected to contract through 2009 before slowly recovering.
Government forecasts tend to be optimistic and Darling is likely to predict a short, sharp shock followed by a swift recovery. That would help justify any fiscal boost now and lay the foundations for repairing the public finances in the future.
On the debt front, Darling has forecast borrowing of 43 billion pounds this year, but even without any giveaway analysts say that figure could rise to around 70 billion pounds this financial year and around 120 billion pounds next year.
POLITICAL AND ECONOMIC GAMBLE
Any fiscal support package represents a big gamble.
Critics warn taxes will need to rise eventually to balance the books and that could put the brakes on the economy as it emerges from recession -- and turn voters away from Labour.
With an election due by May 2010, Prime Minister Gordon Brown needs to turn the popularity spike he has enjoyed during the financial crisis into a sustained boost during a recession.
One opinion poll this week showed Labour trailing the opposition Conservatives by just three points -- a swing of 12 points in Labour's favour in the last month.
The Conservatives have taken the opposite bet, abandoning this week plans to match government spending proposals which they said would lead to higher taxes.
"Let me put this as clearly as I can -- unless we curb the growth of spending, taxes will need to rise in future," Conservative leader David Cameron said.
Time will tell who is positioned most cleverly.
Brown came away from a G20 crisis summit in Washington last weekend with backing for using fiscal policy to support growth.
That was much-needed approval for a government about to abandon limits on borrowing that have formed the fulcrum of Labour's economic policy since it came to power in 1997.
For years before the credit crisis, Brown preached a mantra of fiscal prudence.
GETTING IT RIGHT
The government has already given away more than four billion pounds since the March budget, raising income tax allowances and the level at which tax must be paid on property transactions.
Darling could extend the income tax break and even cut value added taxes on goods and services. Businesses have also been pressing hard for a reduction in corporation tax.
Newspapers have reported that Darling will consider laws to force banks -- some of which the government has bailed out -- to lend to small businesses, including capping interest rates on loans to small firms.
On a trip to the Gulf states this month, Brown hinted help will be aimed at poorer income families and small businesses who have been struggling to get credit during the lending crisis.
Brown regards tax credits for those on lower incomes as one of the most effective ways of getting public money quickly into the economy, rather than broader tax cuts or spending.
Darling's number two, Yvette Cooper, said this week that the government could make more efficiency savings than the 30 billion pounds estimated for 2007-2010, making more room for a fiscal boost.
However, the Bank of England has hinted too big a stimulus could reduce the amount by which interest rates need to fall.
Brown and Darling may be left with no choice.
"We're faced with a quite long and deep recession -- they really do have to give a major stimulus to the economy in order for this to have an effect," said Wyn Grant, politics professor at the University of Warwick.