You can use Custom Measurements to include the 'gutter' between labels. You can specify number of labels (in your case 4 ) and width up to combined width of 8.5. Take the width of the left and right margins, add your label size x 4 and then divide the difference by 3. Increase your label width by that number.
After much delay caused by my failure to record checkin data I will comment on your suggestion. I did pretty much what you said but I still had trouble getting the horizontal print to fall in correctly. If there is a way to adjust that spacing I could not figure it out. In the end I printed my labels as down first and used only enough input for two columns. The first two columns were spaced close enough that I could used them. I then reinserted the label sheet in the opposite direction and printed the other two columns. (My client wanted all the labels to be the same- He makes wooden pens using standard workings and these labels just are for attaching to the pens)
Thanks for your input and if you know of a way to adjust horizontal spacing I would like to know how you did it.