UK Chancellor Gordon Brown has said he will be able to spend billions of extra pounds on public services, without having to raise the overall budget.

He was speaking at a meeting of the Royal Economic Society in St Andrews.

Mr Brown said that savings from lower welfare bills and a windfall from the third-generation mobile phone licence auction would allow him to "release money for public services not just for one short year, but ... in a sustained way".

He said paying down the national debt with the �22bn auction windfall would lower interest payments by more than �1bn a year.

Typecast

But the Shadow Chancellor, Michael Portillo, said Labour was reverting to type and becoming a tax and spend party.

Mr Portillo said: "Labour's planned rate of increase in public expenditure is well above the estimated rate of growth of the economy as a whole."

In his speech, Mr Brown did not specify how much money had been saved by falling unemployment and the government's campaign against benefit fraud, but reports suggest that he has identified a total sum of about �3bn that can now be reallocated.

In June, the proportion of the workforce claiming unemployment benefit dropped to a 25-year low of 3.8%, sharply cutting government expenditure.

Spending targets

On Tuesday the Chancellor will tell MPs what he plans to do with the money, when he publishes the Comprehensive Spending Review.

The review, which replaced the annual spending settlement after Labour came to power, sets the government's spending targets and priorities for the next three years.

Repeating pledges made earlier by himself and government ministers, Mr Brown said the extra money would go on education, health, transport and policing.

The spending plans currently under discussion are huge, but the Chancellor promised that they would not bust the government's financial targets.

'Prudence'

He said the budget would stay within the narrow limits for public borrowing set by self-imposed fiscal rules, and argued the extra money was available because of his tough policy on public spending.

"Extra public investment ... comes not at the expense of prudence, but because of our prudence", Mr Brown said.

He ruled out boosting overall spending or using the money for tax cuts, saying that he refused to "make the mistakes of the past".

He said the 1980s and 1990s showed that such short-term policies drove up interest rates and "did nothing for meeting our country's long-term investment needs or for long-term stability".

UK public debt currently amounts to about �330bn.