I am delighted to be here today - and I am wearing three hats:

* As a former council leader understanding well just how much hard work goes in to setting a local authority budget;

* As MP in a hard pressed constituency, seeing how much the well being of my constituents is dependent on the local authority being able to do a good job;

* And as Chief Secretary - my main hat today - recognising that a sustainable settlement for local Government is one of the keys to a successful CSR.

And let me make clear at the outset how appreciative we have been of the involvement and contribution of local government in our work to prepare for the Spending Review.

In Local Services Review seminars we brought in a wide range of advice from local authority practitioners and leaders. I am very grateful for that help and I know Ruth Kelly, Phil Woolas and Angela Smith are too. And we are acutely aware of the wide range of challenges for local government in the next few years across - for example - social care, children’s services, transport, the environment.

Comprehensive Spending Review

One of the first things we did following the election in 1997 was to set up a Comprehensive Spending Review.

This year, we are ten years on. Our intention now is to publish another, equally comprehensive review, setting out detailed three-year spending plans for 2008-9 onwards, but in a context of looking another decade ahead, at the long-term challenges which face the UK.

We see five long-term challenges in particular which public spending needs to be shifted to address:

1. Demographic and social change;
2. Intensifying competition from economic globalisation;
3. Rapid innovation and technological diffusion;
4. Pressure on natural resources and climate change;
5. Continued global uncertainty with threats of international terrorism and conflict.

Let me just spell out briefly how I see local government being at the heart of a successful response to each of those challenges.

Demographic change

Firstly, demographic and social change, with an ageing population and rising aspirations.

We are all living longer. Average life expectancy has been going up by two or three months every year for the past twenty-five years, and there is no sign at all of that trend slackening off. It’s a wonderful transformation - a great achievement - but it creates some tough policy challenges; something people in local government know better than most.

In ten years, the numbers of people aged 85 plus will increase by over a third. The challenge is to ensure we can continue to live longer with dignity and in security, adequately meeting rising consumer expectations, with better social care and services.

In adult social care, Patricia Hewitt has been working with local authorities - and we will need to keep thinking together about how to deliver these crucial services more efficiently to the highest standards.

We have dramatically reduced pensioner poverty since 1997. Local authorities have been key partners with the Pensions Service, and we will want that partnership approach to extend further in the future. We are committed to building on the gains we have already made.

In another area, with smaller households and a growing population, we need to rise to the housing challenge too.

Globalisation

The second challenge is economic globalisation and intensification of cross-border competition.

This morning I attended a seminar looking at the development of China - today China alone has half as many people of working age again as the EU, North America and Japan combined. We have to adapt to intensifying international competition.

In a globalising economy, we have done superbly well in attracting businesses from all over the world into the UK. Last year we had more foreign direct investment into the UK than any other country. New York is starting to fret about London’s success over Wall Street, and in my work at the Treasury I have seen how well Manchester, Leeds, Norwich and Northampton have been doing in attracting financial services businesses - and new jobs - into their areas.

There are great opportunities from globalisation. But there are major challenges too, perhaps above all in transport infrastructure, which Rod Eddington’s review addressed last year, and in skills which was the subject of the review by Sandy Leitch.

Our target is to ‘make sustainable improvements in the economic performance of all English regions by 2008 and to reduce the gap in growth rates between regions’. The CSR review of sub-national economic development and regeneration is looking at what more we can do to improve further the prosperity of all the UK’s nations, regions, and localities. Again I am grateful for the constructive input that many in local government have already made as the review looks at flexibility, accountability and incentives. There is a challenging set of issues here for us to address.

And we must deal with the challenges and opportunities of a world of increasing mobility and interconnection around the world - for instance, to build cohesive, strong communities - where local government has the unique ability to lead. Partnership working is key, as we have seen so effectively through Local Strategic Partnerships.

Technological change

And the third challenge is the rapid pace of innovation and technological diffusion.

Over half of UK homes now have broadband - compared with virtually none five years ago. It has been a remarkably rapid change. And I am particularly keen that we make the most of the potential to improve public services, heeding the lessons from Sir David Varney in his review on Service Transformation. Making services more responsive and less expensive will be critical in the future, and technology can help. David’s report points out that, as touched on earlier, local government has been setting the standard.

Climate change

And the fourth challenge, the increasing pressure on natural resources and climate change. The UN Panel on Climate Change has warned us recently of the serious risk of a catastrophic rise in world temperatures by the end of the century.

Nick Stern’s Review for the Treasury was pretty stark. We need action now, on a large but affordable scale, to avert far greater costs and economic dislocation in the future. And we all need to be working together - within the UK, across the European Union and around the world. Only worldwide agreement can deliver the changes that we need.

To meet this challenge we need further innovation from local government: alternative energy sources, as today’s white paper underlines; better waste management. In four years the household recycling rate has risen from 17% to 27% - and we want further innovation and to see it rising further.

Terrorism

And lastly, challenge number five, continued global uncertainty. We face an unprecedented terrorist threat, as we have seen all too clearly. An important part of our response must be to build stronger communities, with greater cohesion.

Local Government record

And in tackling all these challenges, local government can now build on a decade of progress. Funding has increased consistently - a 39% real terms increase in funding since 1997, in sharp contrast to what went before. And performance has improved across the sector. The Audit Commission now rates 79% of councils with 3 or 4 stars, and none are in the bottom category. This is real progress.

Looking forwards, we want to lock in the economic stability which has been so striking in the past decade - and upon which our future success depends too. That means the rate of growth of public spending will need to be slower in the period ahead than in the last few years - consolidating the record uplift in spending of the past decade as we address the challenges of the next. It won’t always be straightforward to pull that off - to change trajectory in that way.

We will need to deepen further the efficiency programme we have been pursuing across Government, and in which local government has already been conspicuously successful. It is on course to deliver its £3 billion Gershon efficiency target a year ahead of schedule.

For the CSR, we have set a target for at least 3% cashable savings a year across the public sector between 2008 and 2011 - that is in local government and in each central government department - and 5% per year on administration spending. We will combine this ambitious focus on value for money with a more effective, coordinated performance management system, responding to the views of users and frontline providers.

We are going to need those savings to enable us to continue to improve frontline services within the resources that are going to be available.
And in doing so we can give more flexibility and freedom, meet increasing expectations and deliver on the vision set out in the Local Government White Paper.

It means stepping up now to further efficiency savings, going further down the road which local government has already embarked along, and embedding efficiency into long-term planning. It needs radical thinking across areas like procurement and corporate services, applying lessons from the growing number of procurement partnerships and successful shared services projects around the country.

Freedom and flexibility

Together the Lyons Review and Local Government White Paper point the way to reforming the Local Government framework, giving more space for councils to deliver. Michael Lyons’ work will continue to inform our thinking and we welcome views on taking this forward in the future.

In the short-term we have a commitment to:

a) Increased flexibility and reduced data burdens; in the Budget we committed to setting a target for reducing specific and ring-fenced grants to local government. We want more local government funding delivered through formula grant or Area Based Grant;

b) and we are committed to Streamlined performance management; with fewer targets and a much smaller number of indicators to be reported, down from around one thousand now to around 200 in the CSR.

The White Paper set out a vision of local government providing leadership for communities, with the key role in effective partnerships, and providing democratic accountability for public services. The Local Government Bill is taking that vision forwards. We have been delighted with the degree of consensus around the Bill in Parliament and in local government.

Local authorities will have more freedom and flexibility to determine and meet priorities in their areas. It means greater responsibility for local authorities - with more and more partnerships with private, public and voluntary sectors, local government will take the strategic leadership role.

And it means more accountability at community level - local government ensuring that local communities are fully consulted and in a position to hold local services to account.

Concluding remarks

20 years ago, as Newham’s planning chair, I started the campaign for the international passenger station at Stratford, to bring back economic vitality. It will be completed later this year and it has paved the way for the Olympic Games to be there in five years time.

It was the local Council which developed the new vision, against a backdrop of large job losses in the 1970s and 1980s, who lobbied others to sign up to it and gathered partners to support it. No other institution could have played that role.

Across the country, local authorities are at the heart of developing the vision for their communities. The Spending Review will aim to equip them well for the challenges ahead. What I’d ask is that we all work closely together to ensure we succeed.

Thank you.