Blair delivers upbeat message to Merseyside and hints at post-election spending increases

Tony Blair reassured voters in Labour's heartlands yesterday with his first hint of "big increases" in public spending after the next general election.

Tony Blair reassured voters in Labour's heartlands yesterday with his first hint of "big increases" in public spending after the next general election.

The Prime Minister ended his two-day tour of the North with a promise that prudent management of the economy would reap rewards for key services such as health, education and the police.

However, Mr Blair offered little hope of relief for manufacturers suffering from the strong pound and warned business that sterling would remain high for the foreseeable future.

The Government faces growing disquiet among some of its own supporters that New Labour has, to date, failed the poor and new research published today is expected to show that the gap between rich and poor is as wide as ever.

Yet during a radio phone-in in Liverpool, Mr Blair offered the prospect of large increases in public spending to come on top of the £21bn already allocated for the NHS and schools.

He rejected calls to release Gordon Brown's £20bn budget surplus, but suggested that the continuation of current policies would pay dividends after the next election with a new three-year Comprehensive Spending Review (CSR).

"Starting this financial year, we have got three years of big increases in real-terms spending. With any luck, and with the same type of prudence, we will have three years of big increases after that," he said. "Yes, there is extra money there. We're spending it, but it's got to be done carefully."

Mr Blair stressed that both he and the Chancellor would insist that new spending be strictly linked to efficiency gains and accompanied by tough performance targets already included in the current CSR.

During an earlier business breakfast at the city's Albert Dock, he warned the region's leading firms that the Government would not be deflected from its tight fiscal discipline.

In a rare comment on the strength of the pound, he made it clear that he was relaxed about the current level of the currency. "It's not clear to me that sterling will fall in the short term," he said. "You can't rely on perpetual devaluation to give you a competitive edge, because it's not going to happen."

Reiterating his view that the North-South divide was more complicated than his critics claim, Mr Blair said that many areas of Merseyside were booming, with banks and the pharmaceutical industry providing new jobs. "I say to the pessimists: don't think you do anybody any good just by talking the region down at every available opportunity. I am determined to make every region of the country prosper."