A DEFIANT Gordon Brown came out fighting yesterday - shrugging off forecasts of economic doom with a passionate promise of five more years massive public spending.

The promise went beyond the Government's three-year spending round to set out plans for annual increases of 2.5 per cent in real terms on public services between 2006 and 2008.

Sources close to Mr Brown insisted that the extra money, estimated to be up to £25bn over two years, would be released from efficiency gains and moving 20,000 civil servants out of London to the regions.

The North-East has already been mooted as a possible home for the Department of Trade and Industry, with Darlington and Tyneside as prime locations.

Mr Brown's new figure excludes spending on the NHS, which is already projected to rise by 7.5 per cent per year in real terms through to 2008 under earlier pledges

But Shadow Chancellor Michael Howard said Mr Brown was offering voters the nightmare of higher taxes - on top of 60 Labour tax rises so far - which would lead to more waste and more failure.

In a well-received 40-minute speech, Mr Brown echoed Tony Blair's insistence on reform of public services, although without mentioning the controversies raging over foundation hospitals and top-up fees.

But the underlying message was of a return to more traditional Labour values, against the backdrop of trade unionists protesting against the pain being caused by job-shedding in manufacturing.

Mr Brown said: "The next spending round will not only lock in the higher spending we have been delivering, but do more, with further increases in spending and investment for our priorities in the years to come.

"And let me tell you this, only this Labour Party will have as a priority for our spending review tackling the greatest unfairness in our society: the unfairness to a child born in poverty."

He repeated his pledge to create full employment in every region, but with few extra details of the regional and local plans expected to deliver the promise.

The Government's most recent forecasts suggested Britain's economy would grow by 1.7 per cent this year, and Mr Brown told the conference that "our economy will grow even stronger in the months to come".

Mr Brown is understood to believe that Britain's low level of debt means that public service investment is sustainable. UK borrowing is at about three per cent of GDP compared with the Government's self-imposed limit of 40 per cent. Increasing borrowing up to that limit could hand the Chancellor about another £60bn.

Mr Brown's comments drew strong criticism from Shadow Chancellor Michael Howard.

Mr Howard said: "Today Gordon Brown condemned the British people to an extended sentence of higher tax, more waste and more failure ... Sooner or later under Labour taxes will rise again."

Liberal Democrat treasury spokesman Matthew Taylor said: "Whatever his deal with Tony Blair over the premiership, there are many who have suffered under Mr Brown's Chancellorship. Mr Brown's optimistic forecasts show a Chancellor determined to ignore reality, but he won't be able to escape downgrading his forecasts once again in his autumn budget statement."

In his speech, Mr Brown committed the Government to further reforms including a labour market package which will include more widespread use of regional pay settlements, sure to be controversial with the trade unions.

He also signalled pensions reform, saying that Work and Pensions Secretary Andrew Smith will legislate for a new statutory pension protection fund, guaranteeing workers their pension rights.

Workers would also get new consultation rights over redundancies, and there will be talks with the unions over the two-tier workforce issue.

Mr Brown backed Mr Blair in his efforts to bring about the reconstruction of post-war Iraq, and praised the professionalism of British servicemen involved in that work.

Mr Brown's speech was, however, warmly welcomed by prominent union leaders.