(Updates following CBI speeches, adds markets)
By Matt Falloon and Peter Griffiths
LONDON, Nov 24 (Reuters) - Prime Minister Gordon Brown will try to kickstart the stalling British economy on Monday by spending billions of borrowed pounds on tax cuts in a bid to stop a recession turning into a slump.
The package, expected to total up to 20 billion pounds ($30 billion), or more than one percent of gross domestic product, will include extra public spending but will also include a warning taxes will rise later to pay for the boost.
An expected rise in income tax for high earners -- deferred until after the next election -- would be a major policy shift for Brown's Labour government and mark the first time that tax had been raised since 1975.
"Extraordinary times require extraordinary action," Brown told a business conference on Monday.
The package, which finance minister Alistair Darling unveils to parliament at 1530 GMT, is expected to include a cut in sales tax and help for businesses, low earners and home owners.
The stakes are high: Britain is sliding into recession with house prices slumping, unemployment rising and manufacturing output shrinking.
Although Brown's handling of the financial crisis has lifted his flagging popularity, a poll published on Sunday still showed his Labour Party trailing the opposition Conservatives by 11 points, a wider margin than some other recent surveys.
"They are throwing money at us now to take it back at a later date. That is the real story of this pre-budget report," Conservative leader David Cameron said. "Never in the history of Britain have so many owed so much."
Brown's chances of winning the next election, due by mid-2010, may depend on the recession being relatively short and shallow -- but that is looking increasingly unlikely.
As well as radically increasing his borrowing numbers, Darling will have to slash his economic activity forecasts.
Respected economic forecasters, the National Institute of Social and Economic Research, said on Monday Britain's economy would shrink by 1.5 percent next year and is not expected to start recovering until early 2010.
In March, Darling forecast growth of about 2 percent this year and around 2.5 percent in 2009.
SOARING BUDGET DEFICIT
Labour's spending measures could send Britain's budget deficit ballooning to around 120 billion pounds in the next financial year, forcing them to abandon long-standing rules limiting government borrowing.
Sterling and gilts were little changed in morning trade on Monday as markets waited to see the fine print.
To persuade markets the government will balance the books once the economy improves, Darling is expected to announce plans for deferred tax rises and public spending curbs.
British media said one measure would be a new 45 percent income tax rate on high earners if Labour wins the next election, up from the current top rate of 40 percent.
The move would be controversial because it would break a Labour pledge that formed the backbone of Labour's revival in the 1990s not to raise taxes on high earners.
The centrepiece of Monday's plan will be a temporary cut in value-added tax, several newspapers reported.
They said VAT could be reduced to 15 percent -- the lowest level allowed by the European Union -- from 17.5 percent, boosting consumers' spending power before Christmas. The cut would be reversed after one or two years.
The Sunday Times said Darling would scrap plans to increase corporation tax for small companies and exempt foreign dividends from tax in an effort to allay concerns that have led several big companies to shift their tax domicile to Ireland.
A Treasury spokesman declined to comment on the reports.
Germany, the Netherlands and Spain have already announced stimulus plans. A European Union package, worth up to 130 billion euros ($163 billion), will be unveiled on Wednesday.