Spend, spend, spend

Education to receive an extra £15bn; Overhaul of public services pledged; Brown says failure will be penalised

Gordon Brown ploughed another £61.3bn into public services yesterday, including £14.7bn for education, as he staked Labour's electoral fortunes on a pledge to put "schools and hospitals first".

The Chancellor announced a spending blueprint which included above-inflation increases for all Whitehall departments over the next three years, but with education the clear winner.

Health had already soaked up a third of the extra £61.3bn through its downpayment in the April Budget. But the growth in education spending, averaging 7.6 per cent over the next three years, will outstrip the rise for the NHS (7.4 per cent).

Mr Brown told the Commons that a typical primary school would see its direct annual payment from the Government rise from £40,000 to £50,000 next April, while for a secondary school it would increase from £115,000 to £165,000. To drive up standards, 1,400 schools, mainly in inner cities, will receive £300,000 a year if they meet new performance targets. But local education authorities will have to sack poor headteachers in return for the money.

The other winners in the spending review included transport (up 12 per cent) and overseas aid (up 8.1 per cent). David Blunkett, the Home Secretary, won a 5.6 per cent increase after enlisting Tony Blair's support for his battle for more money for the police, prisons and asylum.

The Chancellor also announced a £1.4bn boost to the housing budget; a 10 per cent increase for science; an expansion of child care and what he hailed as the biggest sustained rise in defence spending for 20 years.

Labour MPs were jubilant at the spending rises. But the Tories, who pledged to match Labour's spending on health and education at last year's election, pointedly refused to repeat the promise.

Michael Howard, the shadow Chancellor, said: "We are not going to endorse this failed approach to public services." He told Mr Brown: "We are against your plans to spend more without real reform as your record shows it just doesn't work".

The Chancellor accused the Opposition of abandoning "caring Conservatism" for spending cuts. One Brown aide said the Tories' response had revealed "a clear dividing line at the next election".

The Tories claimed that jitters on the world stock markets had forced Mr Brown to scrap plans to describe the spending boost as a £90bn increase. The £61bn figure excludes social security and the repayment of debt.

Despite City fears that his target for economic growth of 2 to 2.5 per cent this year will not be met, Mr Brown dismissed criticism that his cash bonanza was a gamble which could result in higher taxes. He insisted that the spending rises were affordable after his decision to raise national insurance in the Budget – and that he had not abandoned his reputation for prudence.

Mr Brown stressed that the extra money would come with strings attached. "Failing institutions will be dealt with early and decisively," he said. Poorly performing schools would be taken over by a new head or neighbouring school or closed and reopened. Failing local authorities would be taken over by a high-performing council.

Unsatisfactory colleges would lose money, while new managers would be imposed on poorly performing prisons, social services and housing departments.

In a Commons statement today, Estelle Morris, the Secretary of State for Education, will make it clear she will not tolerate failure to raise standards. An aide said: "People should be in no doubt at all this extra investment will be matched penny for penny by radical reform. There are no blank cheques and we will expect a step change in standards in exchange for more resources."

She will also announce an expansion in the number of specialist schools and city acadamies – financed through private sponsorship and run along the lines of independent schools with state cash aid.

Mr Brown was jeered by Tory MPs when he promised that good performers in the public sector would receive more money and greater freedom and flexibility.

Reaction to the Chancellor's programme was broadly positive. Digby Jones, director general of the Confederation of British Industry, said: "The Chancellor has rightly invested in the future productivity of British business with funds for education and transport. But we must not waste this historic opportunity to reform public services."

John Monks, the TUC general secretary, welcomed the spending review as "bold but balanced". It was based on "cautious" economics which, he said, made the spending "more than affordable."

But as council workers prepared for a one-day strike tomorrow, Dave Prentis, general secretary of Unison, said: "Local government is constantly being shoved to the back of the public sector queue and is becoming a weak spot, a gaping hole in the heart of the Chancellor's plans."

Spending review: the main points

Biggest house-building programme for 25 years to tackle housing shortages, curb house prices and help key workers afford homes in South-east

Failing schools and local authorities to be taken over by high performers

Education spending to rise by £14.7m; an extra £50,000 a year direct to typical secondary school

Home Office budget up by average of 5.6 per cent for fight against crime

Overseas aid budget wins biggest increase, up by average 8.1 per cent a year

Transport spending to rise by average of 12 per cent to implement Government's 10-year plan

Science budget to rise by 10 per cent