The need to step up Britain's intelligence activities in the wake of the September 11 attacks is set to add to the pressures on Gordon Brown's spending plans.

While an extra £15 million is already thought to have been earmarked for the current financial year to allow an immediate upgrading of capabilities, the security establishment is set to have its budget requests met in full over the coming years. Agency budgets have been on a downward trend since the end of the Cold War as part of the "peace dividend".

Although the government has planned above inflation public expenditure increases in key areas of health and education, the security agencies have sought increased funding on top of the £2.8 billion already planned for 2001 to 2004.

While the Secret Intelligence Service's (sometimes referred to as MI6) budget is around £200 million annually, it has already started a new recruitment campaign which could see it double the size of its existing 1500 staff. It usually recruits around 12 fast-track graduates, but is now reported to be aiming to recruit an extra 40 people.

MI5 is also set for a rapid expansion. It will take on an additional 15 fast-track officers this year, while the number of support staff is also set to rise. Combating international terrorism is also set to take up a larger share of the organisation's budget.

MI5 has published figures for 1998/99 indicating that of its budget of less than £140 million, 22.5 per cent was spent on international terrorism, compared with 30.5 per cent spent combating Northern Ireland related terrorism.

GCHQ is also expanding as it moves from its current sites at Oakley and Benhall in Cheltenham to a new £330 million, PFI-funded, base. The new building will house "probably the most powerful computing facility in Europe", as the organisation describes its IT network on its website.

With the agencies rapidly re-focusing attention on the increased threats posed by al Qaeda and other Middle East-based terrorist groups in the wake of the September 11 terrorism, the government is keen to ensure everything possible is done to protect the UK from attack.

While ministers have emphasised there is no knowledge of any specific plot to target Britain, it has been acknowledged that as a participant in the on-going military action in Afghanistan and as a key American ally, the UK is seen as an enemy by fundamentalist organisations.

While there has been criticism of intelligence agencies, both in Britain and America, that they failed to predict and prevent the plane hijackings, the key role the security services are now playing in the current crisis was brought to the fore with the inclusion of John Scarlett, a former MI6 officer, in the prime minister's newly formed war cabinet.

Scarlett sits as the chairman of the joint intelligence committee which co-ordinates intelligence reports and ensures ministers are kept informed.

Another member of the war cabinet, chancellor Gordon Brown, will have to find the funding for the new "war on terror". With financial reserves already hit by the costs of the foot and mouth crisis, and the costs of the military action in the Middle East rising, the public spending implications of the events of September 11 are becoming clearer.

But while the sums involved may be relatively small compared to the overall total of government expenditure, of greater concern for the chancellor will be the impact terrorism and the military response will have on consumer confidence around the world.

Even before the events of September 11, consumer spending was the key factor in keeping the economy growing and it has now become more important than ever for the government to reassure the public.

In his last Budget, Brown forecast a public finance surplus of £6 billion, followed by deficits over the next three years. With economic growth needed to fund spending planned to rise by almost 4 per cent a year before inflation, a slowdown could both hit tax revenues and push up spending on social security benefits.

It has also become increasingly unlikely that GDP growth will hit the Budget forecast of 2.25 to 2.75 per cent.

This is why Blair, Brown and other government ministers have been keen to emphasis that the fundamentals of the US, British and European economies remain strong.