July 12 (Bloomberg) -- U.K. Chancellor of the Exchequer Gordon Brown today will try to boost support for Tony Blair's ruling Labour Party by outlining plans to spend more on health, education and national security, said John Curtice, professor of politics at Strathclyde University in Scotland.

The Treasury declined to reveal details of where the extra money will be spent ahead of Brown's parliamentary statement this afternoon. The Chancellor told business leaders in London last week he'll pay for it by curbing government spending and forcing departments to cut costs to hold growth in state spending to an annual 2.5 percent over the next few years compared with 6 percent in the year ended in April.

Domestic initiatives may help Blair distance his government from the Iraq war, which hurt its popularity, according to opinion polls. Brown presents the plan two days before a report by Robin Butler, a former head of the Civil Service, into whether intelligence officials overstated the threat from Saddam Hussein, and three days before elections for vacant seats in two constituencies that were held by Labour legislators.

``It's another attempt to sell the direction of government policy on the home front -- the trouble will be that Iraq will be bouncing right back again,'' said Curtice, co-author of ``The Rise of New Labour,'' published in 2001. ``The question will be whether, because people are unhappy about Iraq, they no longer listen to what the government says about the domestic agenda.''

`More With Less'

Brown in March pledged to raise education spending by 33 percent and health spending by 22 percent through the fiscal year ending April 2008. Trade and Industry Secretary Patricia Hewitt said Brown also will promise today to cut bureaucracy under a program he expects will save 20 billion pounds ($37 billion) a year.

``What you'll see as part of our commitment to public services is the delivery of the promise to make government more efficient and more productive,'' Hewitt told journalists at a conference in London on July 6. ``All of us, in my department and others, will be doing more with less.''

Support among U.K. voters for the war in Iraq fell below 40 percent in July from 60 percent in April 2003, just after military action began, according to a poll of 1,000 voters by Populus Ltd. for the London-based Times newspaper. The survey was conducted July 2-4 and had a margin of error of 3 percentage points.

Labour's backing was at 33 percent this month, compared with 42 percent in the last general election in 2001, according to the same poll. The survey suggests Labour candidates in the two elections on Thursday may see their share of the vote slip as the opposition Liberal Democrats argue that voting for them is the best way to protest the war.

`Lost Its Way'

``People felt the national government had slightly lost its way, that it was interested in things that weren't terribly Labour,'' said Jim Cousins, a Labour member of Parliament who sits on the Treasury Committee that oversees economic policy, in an interview in London. ``I'm not saying that these were fair judgments, but that was what people felt.''

Hewitt, along with Cousins and two other Labour members of the Treasury Committee, said the review will curb spending growth and keep the budget deficit under control in Europe's second- biggest economy, which grew at a 3.4 percent annual pace in the first quarter.

The deficit was 37.5 billion pounds ($69.5 billion) in the year ended April 30, the most since Blair took office in 1997.

In March, Brown said total spending will rise to 554 billion pounds in fiscal 2009 from 428 billion pounds in the last fiscal year. Today's statement will allocate that cash to departments.

Little Room

Locking in the gains Brown plans may force the Treasury to borrow more or increase taxes to meet its own rules for balancing the budget over the course of the economic cycle. While Brown expects the deficit to narrow to 33 billion pounds this year, economists surveyed by the Treasury expect the shortfall to remain at almost 37 billion pounds.

``The chancellor's fiscal rules and optimistic forecasts leave him little room to maneuver,'' said Ross Walker, an economist at Royal Bank of Scotland Plc, one of six banks trading the most U.K. government bonds. ``The risks remain skewed toward higher public sector borrowing and tax-raising budgets in 2006 and 2007.''

In a speech on July 6, Brown vowed to curb spending growth to 2.5 percent by fiscal 2006, from 6 percent last year, and to have ``no irresponsible pre-election spending sprees.'' He said the U.K.'s deficit, at 3 percent of gross domestic product, is low compared with gaps of 4.9 percent in the U.S., 2.8 percent in the dozen euro nations and 8.2 percent in Japan.

One Cloud

Brown already has promised to boost spending on the National Health Service to 109 billion pounds in fiscal 2008 from 82 billion pounds this year, a 7.1 percent gain, adjusted for inflation. Education funding will rise to 77 billion pounds from 63 billion pounds during the same period.

``We're on track to improve public services,'' said Nigel Beard, a Labour member of Parliament on the Treasury Committee. ``We've kept this program going for five years. The only tiny cloud on the horizon is the rate tax revenue is coming in.''

Transportation and defense programs may get smaller increases. Brown promised last week to boost defense spending in ``real terms.'' He also said he will focus funds toward protecting the nation from terrorism. Defense takes 27 billion pounds a year, benefiting weapons makers including BAE Systems Plc and GKN Plc.

The government also may back off from programs to improve roads and rail networks, disappointing industry leaders including Digby Jones, director general of the Confederation of British Industry, the U.K.'s top business lobby group, and construction companies such as Jarvis Plc and Balfour Beatty Plc that work on building and railroad projects.

``Outside the two favored departments, there will be some unhappy people,'' said George Mudie, another Labour member of the Treasury Committee. ``I'm not sure transport will be overjoyed. But we're going to keep a tight grip. It's key to keeping things under control.''

To contact the reporter on this story: Reed Landberg in London landberg@bloomberg.net.

Last Updated: July 11, 2004 19:06 EDT