CHANCELLOR Gordon Brown has pledged extra spending on children, councils and the war on terrorism - but warned public finances are set to plunge £37bn into the red.

In his annual pre-Budget report, Mr Brown told the Commons that the UK would have to borrow £10bn more than he predicted at last April's Budget.

Union leaders and business welcomed his confidence in the economy, but opposition parties said the scale of the debt could threaten the country's financial stability.

Mr Brown announced an extra £800m for operations in Iraq and Afghanistan, taking spending in the war on terrorism to £6.3bn.

He unveiled a £1bn package for children, including tax breaks for firms providing child care and the development of children's centres.

And he announced a cash injection of £406m for local authorities, intended to prevent a repeat of this year's council tax rises.

Among the other measures, there were announcements of incentives for the British film industry and rate relief for amateur sports clubs.

Mr Brown promised a freeze on spirit duty, coupled with a scheme to stamp spirit bottles to prevent duty fraud - but there were no announcements about cigarettes, wine or beer.

A series of proposals to reduce the cost and red tape for companies offering occupational pension schemes was also outlined, along with a plan for every region to aim for a goal of total employment.

The Government's flagship New Deal job creation scheme is to be retargeted, with £190m to help improve the skills of workers and jobseekers.

Mr Brown also backed plans to transfer at least 20,000 civil service jobs to regions such as the North-East.

In his April Budget, the Chancellor forecast borrowing of £27bn in 2003. This has risen to £37bn.

He said in April that borrowing for 2004 would be £24bn, but has now revised the sum to £31bn.

Shadow Chancellor Oliver Letwin accused Mr Brown of allowing borrowing to spiral out of control and warned against any weakening of interest rate policy following the switch over to the euro-zone measure of inflation.

"You will have been warned about families who borrow a huge amount on their credit cards, but you are doing the same on the nation's credit card," he said.