Gordon Brown yesterday embarked on a £61bn spending spree aimed at bolstering public services - but with tough strings attached.

As expected, schools are the biggest winners in the Chancellor's three-year Comprehensive Spending Review, with the education budget increasing by six per cent from £45bn to £58bn.

However, virtually every institution from schools to prisons face being taken over or having new management foisted on it, if it fails to meet targets set by the Treasury.

New inspection bodies are also to be created for health and social care, along with a reformed inspection regime for criminal justice and a new housing inspectorate.

Transport, housing, defence, law and order and rural affairs were also among departments best rewarded in the spending round that will determine the battleground for the next election.

A major increase in funds to boost the economies of deprived regions like the North-East and Yorkshire was also announced.

Regional development agencies, including One NorthEast and Yorkshire Forward, will be given "strengthened local roles" in transport, tourism and housing.

Overall they will see their budgets rise by £400m, from £1.6bn this year to £2bn in 2005-6 - £200m of which is above planned spending increases.

Mr Brown made clear his determination that the massive cash hand-outs over the next three years would be given only if tied to reform.

"For this Government, reform and resources go together," he told the Commons.

Increases in NHS spending were announced in Mr Brown's April Budget and he added: "A Budget for the health service, a spending review for education - as we promised, schools and hospitals first."

But Shadow Chancellor Michael Howard said the Government had already failed on healthcare, violent crime, and truancy despite a "panoply" of targets.

He told MPs: "Isn't it abundantly clear that the Chancellor and his colleagues simply do not know how to bring about real reform and improvements in public services?"

In his 36 minute speech, Mr Brown also outlined how transport spending will grow by 12 per cent a year over the next three years - from £7.7bn to £11.6bn by 2005-06.

An increase of more than £1bn for housing and planning was also announced. Further details will emerge on Thursday on reforms to the planning system to include "business planning zones" to promote regeneration.

Mr Brown said they would "speed up development and create jobs in high unemployment areas."

Home Secretary David Blunkett is to get an extra £2.9bn a year, taking his department's overall total to £13.5bn to fund the crackdown on crime.

He is due to make a full statement on how the cash will be spent tomorrow.

Rural Affairs Secretary Margaret Beckett will get a £400m budget increase for her department to improve flood defences and help implement the Curry report on sustainable farming in the wake of foot-and-mouth disease.

The Chancellor also unveiled the biggest increase in defence spending for two decades.

The main points

* Public spending by Government departments to rise by £61bn, from £240bn this year to £301bn by 2005-6.

* Education budget to rise by six per cent a year for the next three years, from £45bn to £58bn.

* Educational maintenance allowances worth up to £1,500 a year for pupils staying on after 16 from September 2004.

* Transport budget to rise from £7.7bn to £11.6bn by 2005-6.

* Home Office spending to increase to £13.5bn.

* Defence budget to rise from £29.3bn to £32.8bn by 2005-6.