Chancellor Gordon Brown is giving priority to a £500m boost for affordable houses in the South East in the final bids for his comprehensive spending review.
Mr Brown, who has remained aloof from the row over spin, which has left the Prime Minister and Downing Street besieged, will enhance his own long-term ambitions for the leadership by steering the Government back on to solid ground, with extra cash to improve public services.
The Treasury's deadline for cabinet bids for higher spending was on Friday.
One of the main beneficiaries of the review will be John Prescott, the Deputy Prime Minister, who took charge of housing after the reshuffle.
The Chancellor is ready to sanction a massive increase in spending on housing projects, due to rise to £1.2bn in 2003. In spite of fears of a crash in house prices, ministers are concerned that key workers such as police, nurses, and firefighters, are unable to afford homes in the South East.
Ministers have also been warned by major retailers that they are now having difficulties recruiting staff in the region for their shops and supermarkets because of the high cost of housing.
The extra cash will be used to subsidise affordable housing schemes by the Housing Corporation. House builders will be allowed to build more homes on green-field sites.
Thousands more homes will be built on brown-field sites, including those in the Thames Gateway. Further money will go on demolition and rebuilding on the sites of run-down estates in the North, where private owners have seen their property values slump, making their houses unsaleable.
Mr Brown will also allocate more cash for the beleaguered rail network. The new Secretary of State for Transport, Alistair Darling, inherited a relatively modest bid for a bigger budget from his predecessor Stephen Byers.
Mr Byers insisted that he had enough in his £8bn unallocated budget to fund unexpectedly high spending on railway maintenance after the Hatfield crash and compensation to shareholders after his decision to put Railtrack into administration. Estelle Morris, Secretary of State for Education, is also bidding for extra cash for more teachers.
Both Mr Brown and the Prime Minister see the spending review as a crucial answer to the loss of trust suffered by the Government over its failure to deliver promises on public services.
However, they are facing a bruising battle over bids by David Blunkett, the Home Secretary, for more cash for policing, following a climbdown over radical reforms to the police service, and by Geoff Hoon, Secretary of State for Defence. He is appealing for funds to meet the rising cost of the armed forces in the wake of 11 September.
On Tuesday, in a speech at Mansion House, the Chancellor will reassure the City that higher public spending will not put at risk his economic strategy.
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