The chancellor has repeated his pledge to increase public spending.

Total managed expenditure will increase from £459 billion this year to £579 billion by 2007-8, Gordon Brown told MPs on Wednesday.

In his eighth Budget he reaffirmed a real terms increase in health spending of 7.2 per cent, along with an increase in medical research spending within the NHS to £1.2 billion a year by 2008.

Defence, transport and Home Office budgets would also increase, he said.

In education, primary school heads would directly receive £55,000 in 2005-6, the chancellor, confirmed, while those in secondary schools would receive £180,000.

By 2008, the education settlement will increase by 4.4 per cent, he said, while capital investment in schools will increase from £6 billion in 2005 to £8.1 billion in 2008.

There would also be real terms increases in spending on higher education, as well as early years education and childcare, he said.

Education secretary Charles Clarke is due to announce the creation of 1,700 new children's centres across the UK.

Cuts

However, Brown also announced that cuts in staffing and administration costs would be made across the board, in reaction to publication of the Gershon review of government efficiency.

Although all departments will see a five per cent reduction in their administration budgets, the chancellor was also specific about where jobs would go.

The Department for Work and Pensions will see a five per cent cut in its budget by 2008, redeploying 10,000 staff and cutting 40,000 jobs by 2008.

The Department for Education and Skills will also reduce staffing in its London headquarters by 31 per cent by 2008.