UK Chancellor Mr Gordon Brown set out Labour's general election stall yesterday with commitments to increase spending on frontline services funded by what he proclaimed was Britain's longest period of growth since the Industrial Revolution.

Unveiling his eighth consecutive budget in the House of Commons, Mr Brown said its purpose was to "lock in for Britain the stability that can and will endure" and combine "a new confidence" in the British economy with the government's commitment to "excellence" in education, science and enterprise.

The chancellor's headline announcements - more money for schools and hospitals, as well as for defence, policing and the "war" on terrorism - carried the challenge to a Conservative Party committed to freeze, and in real terms reduce, spending across a range of services.

And Mr Brown sought to defuse the growing revolt over council tax increases with the promise of an additional £100 sterling (€149) per household for pensioners over the age of 70, while stealing the Tories' clothes with a pledge to cut some 40,000 public jobs to help fund his spending.

Temporarily spared their preoccupations with Iraq and the terrorist threat hovering over London, Labour MPs thrilled to Mr Brown's promise to freeze a series of taxes while delivering a 10 per cent cash rise year on year for the National Health Service to 2008, with £6 billion for the Home Office, increases in the defence and transport budgets and an extra £8.1 billion for the Department of Education.

Mr Brown said he would fund these commitments by further reducing public debt and by strict adherence to his "golden rules" for balancing the budget over the economic cycle with a predicted surplus of £11 billion.

Despite public scepticism at the time, Mr Brown said the UK economy had grown by 2.3 per cent in 2003, as he had predicted in last year's budget, and told MPs that growth would rise to 3.5 per cent in 2004 and 2005, before returning to trend growth of 2.5-3 per cent.

However, the chancellor also admitted that the UK would have to borrow 3.4 per cent of gross domestic product - so breaching the Maastricht criteria set by the European Union - and that borrowing in 2004-2005 would rise to £33 billion, compared to his previous forecast of £31 billion.

This prompted the Conservative leader, Mr Michael Howard, to ask that, "if everything is going so well, why does he have to borrow so much?" And with independent forecasters predicting a possible £10 billion "black hole" in the chancellor's spending programme come May or June next year, Mr Howard insisted that tax rises would be "inevitable" if Labour won a third term.

With the chancellor effectively declaring Britons had never had it so good in 200 years, Mr Howard mocked Mr Brown's St Patrick's Day budget, telling MPs that St Patrick had once famously described himself as the most humble-minded man. "That is not an accolade for which the chancellor is a contender," declared Mr Howard to laughter on the Tory benches.

And the laughter was not confined to the Tory ranks when Mr Howard thanked the chancellor for confirming that Britain would not be joining the euro - though he had not put it in such terms. Effectively kicking prime minister Mr Tony Blair's euro project into the post-election long grass, Mr Brown announced no new assessment of the Treasury's famous five "tests" for membership of the single currency, saying only that they would review progress in next year's budget.

"While the government does not propose a euro assessment be initiated at the time of this budget, the Treasury will again review progress at budget time next year and report to the House," Mr Brown told MPs, prompting delighted 'No' campaigners to predict that a British referendum on the euro remains years away.

Ms Lucy Powell, campaign director of the Britain in Europe group, said: "The chancellor's decision not to recommend euro entry for now is hardly unexpected. It has been clear for some time that the government would not call a referendum in this parliament.

"But it is still a missed opportunity for Britain. Britain in Europe continues to believe that joining the euro is in our long-term national interest and that we are missing out on higher trade, investment and economic growth by staying out."

However, Labour MP Mr Ian Davidson countered: "There has been the usual spin to calm the euro lobby but the bottom line is that there will be no referendum in the next few years.

"That is the right decision for Britain and the right decision for Labour," according to Mr Davidson.

"Now we can go into the next election focusing on the issues that really matter to people, like schools and hospitals."

Mr Matthew McGregor, campaign manager of the No campaign, said: "The chancellor has knocked the euro off the political agenda - now the government can concentrate on what it was elected to do."