Labour will cut dole bill to help schools

Blair will keep Tory spending levels in first year of office

Labour will cut the social security budget in order to fund its commitments to schooling, which include smaller classes, extra nursery places and a blitz on under-performing schools.

And in its first year, a Labour government would keep overall spending within guidelines laid down by the Conservatives.

These principles, which underline Tony Blair's determination to bury for ever the Tory charge that Labour is the "high tax, high spend" party, will be announced this week when Labour's long-awaited policy document, The Road to the Manifesto, is launched.

The savage crack-down on spending will allow Gordon Brown, the Shadow Chancellor, to match any tax reductions announced by the Tories.

The policy document will state that any spending commitments proposed by a new Labour government will have to be funded out of savings from existing budgets. One source said: "We are not going into an election committed to spending increases where we do not explain how they are going to be funded."

Over the life-time of a Parliament, Labour plans a fundamental shift in resources from the pounds 90bn social security budget to education and training. That means any savings on social security are unlikely to go on improved real benefit levels.

A senior party source said: "Our objective is to reverse the trend established over the Tory years of spending less as a proportion of revenue on education than on welfare."

This week Mr Blair will highlight Labour's commitment to cutting class sizes to 30 or less for all five, six and seven-year olds, funded by the abolition of the Assisted Places Scheme.

As Labour's job creation and youth training programme, partly funded by a windfall tax on the utilities, takes people out of benefit, money will be switched away from social security and into schools.

David Blunkett, Shadow Secretary of State for Education and Employment, has identified several priority areas for spending.

These include the creation of nursery places for three and four-year- olds and the extension of the pledge of limiting class sizes to 30. Labour faces a big backlog, with an estimated 1.6 million children in classes of more than 30. After honouring the pledge on five, six and seven-year- olds, the next stage would affect children up to 11.

Mr Blunkett also wants to divert more resources to specially targeted schools that are under-performing.

Other key themes that will be highlighted include health, where Labour will promise to save pounds 1.5bn through efficiency gains; crime; welfare-to-work; and the economy, including the windfall tax.