An economic think tank has claimed that the Treasury requires a further £20 billion to fund investment announcements made in the Budget.

The National Institute of Economic and Social Research said on Wednesday that the UK economy would this year grow by 1.8 per cent, as opposed to the two per cent increase predicted by chancellor Gordon Brown.

As a result, taxes would have to increase it claimed in its quarterly review.

The Budget had "weakened the public finances and is over-optimistic about the amount of tax revenues that future growth will generate," they said.

This criticism in the report follows that by the Ernst and Young ITEM club, who claimed that the Budget was "unrealistic."

It also comes after a powerful committee of MPs hit out at the chancellor's Budget, criticising tax increases and raising doubts about Gordon Brown's growth predictions.

The Treasury affairs select committee said on Tuesday that the one per cent increase in national insurance amounted to a tax increase on workers.

"The proposed increases in NICs for employees and the self employed will deliver a tax increase to those groups that is very similar to a one per cent increase in the rates of income tax," says the report.

The Commons study also slammed the chancellor for claiming that the upper ceiling in national insurance remains in place, despite the fact that the extra one per cent will be paid on all income.

"To insist that the upper earnings ceiling remains intact seems to us mere sophistry," said the report.

The committee said the decision not to apply the ceiling represented "a move of the national insurance system towards that of general taxation".

The cross-party group of MPs also expressed doubts about the decision to raise the additional revenue through national insurance, which is not paid by pensioners, rather than income tax which applies across the board.

"The Treasury has yet failed to make the case for choosing a method of payment which excludes well-off pensioners and people living comfortably off unearned income from making a contribution to higher NHS spending," said the MPs.

The cross-party committee also expressed concern that Brown's economic growth assessment may be "based on over-optimistic projections".

"Whether the Treasury's growth forecasts are achievable remains to be seen, and we note the view that they are perhaps optimistic given the considerable uncertainties facing the global economy," said the report.

It also warns the government that the consumer boom could do damage to the economy unless it is brought under control.

"The imbalances between net trade and domestic demand, and in particular strong consumption growth, may present a challenge to the stability of the economy," suggested the MPs.

The committee, which is chaired by Labour MP John McFall, also attacked the government over its decision to change the tax arrangements for foreign companies.

Following a warning that major foreign investment banks will quit the UK unless ministers think again, the select committee said the chancellor should have held a consultation period before announcing the move.

"We deplore this lack of consultation with foreign banks in London," said the inquiry.

Government insiders have dismissed the report, arguing that its conclusions reflected an anti-government bias.

Although the committee has an in-built Labour majority, three Labour MPs failed to show up in order to register their vote on its conclusions.

The non-appearance of Kali Mountford, George Mudie and Dr Nick Palmer left Conservative and Lib Dem MPs with the whip hand when the report's recommendations were put forward for consideration.

Despite the government's counter-attack, the committee's findings have been seized upon by opposition parties.

Shadow chancellor Michael Howard said: "The chancellor's Budget has been criticised by business, by independent experts, and now by the all-party Treasury select committee. Their report, based on expert evidence, is a damning indictment of Labour's Budget failures."

"This report shows just how big a mistake the Budget was. Not only did it represent a missed opportunity to improve and modernise the NHS, but it will do great damage to enterprise, to business and to jobs."

Liberal Democrat Treasury spokesman Matthew Taylor said the report would make "hard hitting" reading for Brown.

"It casts doubt on the chancellor's increased growth forecast, and criticises the increasing complexity of the tax system. It points out that the chancellor's decision to increase National Insurance contributions as opposed to income tax could lead to job losses, and will mean that many people who could afford to contribute will not do so," he said.

"The chancellor's decision to rule out using income tax to pay for better public services was always political. The report confirms that the price of that decision could be paid with lost jobs and a less fair tax system."

The Treasury committee also suggests Brown should account for the government's PFI and PPP commitments, known as "off balance sheet finance", in his Budget Red Book.

And as delivery continues to be an issue in Whitehall, the MPs condemn under-spending in some government departments and urging the chancellor to consider what "sanctions" are to be imposed against ministers who fail to spend their budget allocations.