The Stormont Executive's spending budget will grow by an average annual rate of 1.7 per cent or £2.3 billion (€3.31 billion) in real terms over the next three years.

The announcement was made following British chancellor of the exchequer Alistair Darling's pre-budget statement at Westminster yesterday, which outlined the state of the economy and what will be contained in his budget next spring.

Details of a comprehensive spending review and the pre-budget statement specific to the North's Executive were later released in London.

According to a statement, spending in 2008-09 will be £400 million higher than in 2007-08. In the following two years, the figure will be £700 million and £1.2 million respectively than this year's spending - a total increase of £2.3 billion.

The treasury said the new spending totals were not prescriptive and the Executive was free to make its own announcements about its spending plans, "reflecting its own policies and priorities".

Stormont finance minister Peter Robinson said the announcement represented "key challenges" for Northern Ireland.

"It had been clear for some time that the growth in public spending at the UK level under the 2007 comprehensive spending review would be less than in previous spending reviews, which had been reflected in some of the early settlements for Whitehall departments.

"This highlights the need for local departments to deliver efficiencies over the period to 2010- 11 in order that resources can be released to deliver improvements in priority frontline services."

He said the announcement would help him to finalise his draft budget which will be put to consultation next month.

Northern Secretary Shaun Woodward welcomed the new spending totals and claimed they would facilitate record spending levels on public services.

"This pre-budget statement/ comprehensive spending review ensures that there will continue to be substantial growth in public spending over the next three years for the benefit of all in Northern Ireland," he said.

Referring specifically to Northern Ireland, Mr Darling promised to simplify the tax system, making it fairer and more efficient.

This would be achieved through three simplification reviews and a package of simplification measures.