Britain plans to spend more on universities and research to keep pace with India and China.

"India and China will soon be tremendous competition for us," British Prime Minister Tony Blair told The Times daily.

He stressed the education system should be made up of independent state schools of real quality, which would look after the needs of every child.

But he opposed any hike in the taxes, stating that they would damage competitiveness against countries such as India and China.

With ministers finalising their spending plans for the next three years before negotiations with the Treasury, there have been warnings that Chancellor Gordon Brown would have to raise taxes or increase borrowing to maintain the rate of growth for spending.

But several times in the interview, Blair suggested that he regarded higher taxes as dangerous and endorsed Brown's prediction that the going would be 'tough'.

Mocking the Liberal Democrat plan to pay for extra education funding from a 50 per cent top rate of tax, Blair insisted that such a move would 'destroy the competitiveness of the economy'.

The prime minister agreed with the Archbishop of Canterbury, Rowan Williams that he would be 'called to account' over Iraq.

Accepting that he has a 'moral duty' to deliver a stable and peaceful Iraq, he described the archbishop's sermon at last Friday's remembrance service as 'brilliant'.

Blair categorically ruled out a referendum on the future constitution of Europe, saying it would 'convulse' the workings of government at a time when the domestic agenda was paramount.