Tony Blair's speech to this weekend's Progressive Governance conference in full.

This Conference sees leaders, Prime Ministers and Presidents from over 30 nations worldwide.

Not just from Europe but from North and South America, Africa and New Zealand.

United in our belief in progressive politics.

United in our desire to see the values of progressive politics shape change.

United in our determination that it is progressive politics not the right-wing that should prepare our countries for the future.

These past months have seen divisions over Iraq.

But whatever those divisions, one thing we know: that for all the threats of terrorism and international security, the only true path to lasting peace is to be united also in recognising that without those values of social justice, solidarity, opportunity and security for all, the world will never prosper or be fully at peace.

We come together at a moment of great challenge.

A new European Union of 25 is coming into being.

In Cancun in September, we need to strike a blow for the poorer nations of the world in opening our markets to them.

The world economy is in difficulty.

In Germany, the SPD in Government takes on the challenge as Gerhard Schroeder argues: "if we fail to modernise ourselves, uncontrolled market forces will modernise us, and freedom will be reduced to a luxury enjoyed by the few, not the many".

In France, Laurent Fabius and others know they must recover from defeat and address the future without surrendering the values that sustain them.

In each country we face the same challenges: pension and health care reform; improving the quality of education; social exclusion; drugs and crime; how to be economically competitive and socially just.

The purpose of this Conference is to learn from each other.

Looking around the world at what's worked and what hasn't it is becoming clearer what makes a successful social democratic government.

The ingredients will vary, as will the measures, but a successful left of centre government:

• always has economic competence as the essential platform

• understands the aspirations of the public to take control over their lives

• explains and shapes the future, understanding new technology, scientific advance, the opportunities and threats from globalisation

• puts educational opportunity at the heart of its programme;

• wins the argument for investment in public services over tax cuts

• engages with and deals with the issue of asylum and has a serious policy on economic migration.

• is willing to be tough on crime but deal with the causes of crime too

• forges an alliance between middle and lower income families.

I want to share our experiences with you, as a progressive party, 18 years in Opposition, following a Thatcherite government that attacked virtually every value and tradition the left held dear.

We have learnt much from Europe, from the Democrats in the US, from progressives round the world.

But here are my reflections.

Yesterday interest rates in Britain fell to their lowest level for almost 50 years.

It was an interesting moment for a progressive party, that during 18 years of opposition had fought a continual charge of economic incompetence.

We have now the lowest levels of mortgage rates and inflation for decades.

But also the lowest level of unemployment.

And the highest ever level of employment.

The point is we are actively combining greater economic prosperity - with living standards up around 15% since taking office - with social justice.

The New Deal for the long term unemployed has virtually eradicated long-term youth unemployment in Britain.

We are the only country of any comparable size in the developed world increasing public spending on health and education as a proportion of our national income.

We now have the best school results we have ever achieved with dramatic improvements in primary schools that rank us 7th in the world for primary education.

Every health service indicator - inpatient and outpatient - is in better shape than 1997.

Death from heart disease - due to the 57% increase in heart operations, investment in new drugs and new procedures - is down almost 20%; in cancer, down almost 9%.

We have record numbers of police officers.

If we finish this term of office with crime falling - we will be the first Government since the War where crime has been lower not higher than when we came to power.

In addition, though we have taken care not to penalise the wealthy, whose success we applaud, we have, through some re-distribution of income through the National Insurance tax increase and through the tax credit system, increased living standards for the poorest families by up to 40%.

A combination of the minimum wage and the WFTC now mean that families even in low paid jobs are better off working, so incentivising them to work and saving the state, unemployment benefit.

So: to anyone who says that progressive politics can't bring together economic competence and greater social justice, I say: we have done it and what's more shown that the more opportunity, the greater the prosperity.

Not a trickle down effect for the few, but a bottom up transformation of opportunity and security for the many.

Now the question is this: having changed the essential paradigm of the right - you have to choose between more prosperity and more social justice - can we rise to the challenge of re-casting the welfare state and public services for the new age of globalisation in which we live? The problem here is that this challenge is as much internal as external.

The dilemma of successful progressive politics is that you are always fighting on two fronts: conservatism of the right and conservatism of parts of the left.

Like any army in such a position, there's always a risk that you forget the one in concentrating temporarily on the other.

And of course on the left our job is to persuade and enthuse, by showing that progressive reform is the salvation, not the enemy, of the causes we believe in.

Here in Britain, the battle at the next election will be a very simple, almost traditional battle with a right more hard to the right than ever.

They will fight on a platform that is: anti asylum and immigration; anti-Europe; anti the extra levels of spending, in order to give tax cuts to the few.

It's the same old script with a few headings about compassion and fairness to beguile the public.

When the Leader of the Conservative Party was asked recently why he called his new programme "a fair deal", he replied, somewhat disarmingly, "I don't know, you tell me".

So I will.

It was to disguise the fact that beneficiaries from his policies on tax, on health, on schools, will not be actually hard-working families but the few at the top who can afford private health and education not those who depend desperately on the collective security of universal provision.

As we learnt in those 18 years, fairness and the Tories tends to be an oxymoron.

So, if that's the true battle, what's the risk? That we retreat from the centre ground.

We concede on modernisation and reform; whereas our true mission is precisely to fight on that centre ground, to show how we can answer the challenge of modernisation through the values of progressive politics.

New Labour was successful because we fought for and won the centre ground.

We must never give it up.

Not in Opposition.

Not now we're in Government.

And reform is the key to it because it is through reform and change we deliver social justice in the modern world.

Let's be clear this challenge is not confined to Britain.

Indeed what is absolutely plain from the most cursory examination of other nations, is that the issues dominating our political landscape are held in common with all countries.

What is driving this challenge? Globalisation - more open markets, technological revolution, mass communication and with it mass consumer tastes that constantly shift.

It's making our jobs less secure.

It makes the pace of change fast.

It means those at work are struggling to provide for those retired or out of work.

It means more people can be treated for illness but also more expensively.

And throughout, as each new wave of innovation crashes through our societies, it increases massively people's expectations of what they could enjoy.

So all our mechanisms of welfare that we have so proudly built come under pressure.

The response of the right is to dismantle them.

Unfortunately the response of the progressive left cannot be just to defend them.

In Britain, for all our success in tackling unemployment, we still have one in five adults economically inactive - with 2½ million children being brought up in families on benefit - most of them not on conventional unemployment benefit, but lone parent benefits and sickness and disability benefits.

There is a risk, seen very clearly in parts of the European left that we end up defining ourselves in economic terms, as anti-globalisation; and in foreign policy terms, by anti-Americanism.

Both are a cul-de-sac.

Let me focus on the former.

We aren't going to stop this global change.

And, in many ways, with it comes enormous opportunities.

It is my conviction that it is only a modernised social democracy - the true description of the Third Way - that can offer a sensible answer to its challenge.

Fundamental to this is the re-casting of the relationship between citizen and state; to one that is neither dependency; nor abandonment; but a partnership between the two based on mutual rights and responsibilities to provide opportunity and security for all in the face of globalisation.

A relationship of dependency is a welfare state that simply gives to its recipients; who expect to be given to and who get what is given.

It tends to be monolithic and passive.

Abandonment is where much of the right want to go, where, in an increasingly insecure world, people sink or swim according to their own devices.

Partnership is not a soft word.

It implies give and take on both sides.

It implies that the individual has responsibilities as well as rights; that they have to do as well as to receive.

It changes the nature of the state from the institution that does it all, controls it all, to one that enables.

And it is far closer to what true social democracy should be about.

Solidarity is a mutual concept.

What flows from this, however, is a policy agenda that is both radical and involves hard choices for our own supporters as well as our opponents.

First, it means replacing monolithic, "one size fits all" state provision with a far more flexible and adaptable system that encourages innovation.

Uniformity can have its own fairness, but it is too often a fairness that is levelling down.

Here in Britain we are opening up our NHS and school system to new types of supplier, more flexible working by staff, rewarding high performance, and devolving power downwards to local schools, local hospitals and PCTs.

The state has a responsibility to fund, to impose national standards and systems of inspection and accountability and will set certain basic rights for the consumer, for example on how long they have to wait for treatment; but otherwise we want to free up the system as far as possible.

The services, as universal services, will remain free at the point of use.

Over the coming weeks, we will be setting out how choice within the NHS can be extended; announcing the first wave of foundation hospitals; and how by 2008 we will get maximum waiting times down on a rolling programme, by which time spending will be well above the current average EU and the maximum wait for an operation will be 3 months, and the average will be half this time.

Our aim is eventually to introduce for each citizen, an electronic patient record; that can be used right round the NHS; with, thanks to the new fixed tariff for NHS care, the patient enabled to go anywhere within the NHS to get the treatment they need; and with the supply of care opened up to a range of providers: public, private and voluntary.

But all free at the point of use.

To some European colleagues this will seem familiar.

To us it will be transformative.

With the science of genetics set to complicate hugely the whole business of health insurance, the NHS will take on an increased relevance to today's world, but only if fundamentally reformed to meet its challenge.

Likewise a range of new schools, state-funded but with new independent sponsors and managers, able to hire teachers and other staff more flexibly are opening up here in London and, through the specialist school system, and all over the UK.

And power and decision-making should be delegated to chief superintendents at Basic Command Unit level, those closest to the problems of each neighbourhood.

We must never be the defenders of the status quo.

We are the change-makers.

And however painful the change, it is worth doing because a reformed welfare state is the only way to social justice in the 21st century.

Secondly, in parts of the welfare state, like pensions and transport, we have to find new ways of funding them, based on contributions from individual citizen and state.

The last Conservative Government in Britain cut the automatic link between state pension and earnings; and pushed more people into private provision.

Poorer pensioners suffered miserably; many couldn't afford private provision.

When we came to power, however, we had a choice: to turn the clock back; or to modernise.

We chose the latter.

We accepted there had to be a balance between state and individual contribution; but we radically improved the incomes of the poorest pensioners whilst raising the income of the wealthiest by less.

Now we face a new challenge.

Many companies find it hard to fund their pension provision.

So we are making it easier for individuals to save, through stakeholder pensions, and through the pension credit, helping those on middle or low incomes as pensioners.

And introducing a safety net for those whose private pension fund collapses.

Pension households will be on average £1,250 a year better off from October this year when the pensioner credit comes into effect.

In university finance, we are tackling the challenge of rising student numbers and inadequate university funding by asking graduates, once they are earning money, to pay back some of the up-front investment the state has made in their education.

The Conservative alternative is to cut student numbers, on one independent estimate by up to half a million fewer students a year by 2010.

Our alternative is not to deny we need a new policy but to make it fair, so that more can go to university but the burden of funding it, is shared between those paying taxes and those benefiting from high quality education.

The competitive challenge from the US, and now China and India mean that failure to act will leave few, if any, European universities in the world's top 20 within a few years.

The same is true on transport where unless, again, we balance contributions from state and citizen, we are always forced to go to the general taxpayer to fund improvements.

For families with children on middle or lower incomes, we have cut taxes.

We need to keep direct taxes low to incentivise work.

But unless we want the result to be poorer services, we need to address the balance between what the citizen pays individually or collectively.

The third area where relations between citizen and state should change is in personal responsibility.

For far too long the progressive left conceded the ground of law and order to the right, whose rhetoric was always good, if their performance was usually abysmal.

Under the last Conservative Government here, crime doubled.

Sometimes the centre left taking on the issue of crime is seen just as "stealing the right's clothes".

Actually it is returning to our roots.

In the next few months, we will have passed, in Britain, fundamental changes in our criminal justice system and new measures to tackle anti-social behaviour.

By that I mean the low level disorder, vandalism - in a word, disrespect - that makes life hell for law-abiding citizens.

To the national media, this issue seems trivial.

It isn't.

It is utterly critical to people's quality of life.

Under the laws, the police will have powers to levy fines on the spot for anti-social behaviour; where youngsters are involved, the parents can be fined: crack houses can be shut and drug dealers evicted; and landlords who let them deal it, penalised.

Already drug dealers assets can be seized; and the new laws will make previous convictions easier to use.

Be in no doubt.

Every time a woman walking her kids along the street or an old-age pensioner sitting in their flat feel safer and are safer as a result of these laws, this will be every bit as much a blow for modern social democracy as the minimum wage or increases in child benefit.

Fighting crime is a progressive cause.

And yes, we are putting millions extra into Sure Start, drug rehabilitation and youth services, so that we hit the causes of crime, too.

Personal responsibility - respect for others - are not right wing concepts - they are fundamental to the just and decent society we believe in.

Fourth, we have to confront what we can call the 20/60/20 society.

20 per cent well off; 60 per cent reasonably off; 20 per cent left behind.

Social exclusion, the creation of an underclass trapped in a cycle of poverty and deprivation, is a unique challenge for us.

And the challenge is complicated by the fact they are not a majority - so any electoral appeal cannot be based solely on them; and they are often the most alienated from politics anyway.

What does not work, is creating a culture of dependency.

But the right's response is therefore to cut them adrift: welfare doesn't work so let's have none of it.

We can only regenerate these deprived neighbourhoods, and only offer hope to the people in them, if we treat them with dignity.

And that means treating them as equal citizens, who may need more help, but still have the same rights and duties as others.

So in the New Deal, we offer people a job but they have a duty to take it.

The Sure Start programme for poor areas encourages families to turn up and take responsibility for their children, as well as offering help.

Our multi-billion urban regeneration programme is based locally, the money and its priorities decided locally and if its not properly used and accounted for, it doesn't get paid.

And local people prefer it that way.

They take control over their own lives.

They look to the state to help.

They look to themselves to make the help work.

And that is what modern welfare should be about.

Fifth, we create a society where we make no concession to prejudice and discrimination.

I am proud we have Britain's first black and black woman Cabinet Ministers.

Proud to have trebled the number of women MPs.

Proud to have proposed the right for gay couples to be recognised in law as heterosexual couples are.

Proud to have set up Britain's first Disability Rights Commission.

We have a long way to go.

But the progressive left should never compromise on these issues.

They are fundamental to the equality of all our citizens and the right's opposition to equality, however many votes it wins by prejudice, should never be part of our appeal.

Sixth, we need a new dialogue with those who work in our welfare state and public services.

We are advocating change to the benefit of the citizen.

They are affected by change; sometimes so they believe, adversely.

We need public service workers' commitment in order to secure change.

They do, often, a dedicated and difficult job.

We have recognised that by substantially increasing public sector pay and the numbers who work in our public services.

Their trade unions are part of our family.

But we cannot allow change that empowers the consumer to be held back.

Never forget: avoiding necessary change may be popular in the short-term; but in the long-term, it provides the ground on which the right can persuade the public that only it can bring about that change.

In the 1960s Britain had a Labour Government.

It was struggling with the need to reform industry and curb trade union excess.

In the end it gave up.

Short-term, peace reigned.

But long-term, the public knew change was necessary and so turned to the right to do it.

Public service reform is the only way of renewing public services and saving them from the right.

Finally, in this re-casting of the relationship between citizen and state, we need to revitalise our means of communicating with the citizen and helping them participate in democracy.

Round Europe and the USA turnout is falling.

Cynicism abounds.

The agenda focussed on by media and politicians often seems of little relevance.

The old ways of the leaflet drop, the Party Election Broadcast, the mass rally can talk to ever fewer numbers of people.

We need to use the new technology - look, for example at the Democrat Campaign in the US: to communicate more directly and personally, and to be prepared to go out and do some of the old Town Hall meetings, absorbing and answering people's concerns directly.

We are introducing laws here to make it easier for people to vote, to vote where it is convenient and to change the basis of local government to give it more power and therefore more relevance to people's lives.

Here, too, we must address the citizen's relations with the state; to tell them honestly that change is their responsibility as well as ours; that local schools are their responsibility as ours; that to beat local crime they need to help; that healthcare is not just the responsibility of the state but that we can affect our own health, by what we do or eat.

This is the progressive challenge in the face of globalisation.

We have one great advantage.

A world that is more insecure, needs a political philosophy based on collective security, solidarity and mutual support.

We have one great drawback.

The welfare state we must reform is the one we created.

We gave birth to it.

We have pride in it.

Rightly.

But the way of demonstrating that pride is to renew it; to recognise that the citizen and the state need to meet each other on different terms to those of 1945.

In truth, today, the challenges for every nation are the same, whether of governments of right or left.

Harder for us to accept but also true, in that some of the solutions also cross political boundaries.

But the way any solutions are implemented are definitively different.

Our approach to the challenge of globalisation will always be different.

We will always be looking to help those most in need.

We will always be seeking to give access to quality health or education according to need not ability to pay.

We will always be standing up for the many against the privileges or prejudices of the few.

Despite some setbacks in the recent years, the centre-left, internationally, remains fundamentally more competitive and successful than a generation ago.

It is instructive to look back.

In post-war decades, the norm for the major democracies outside Scandinavia was government by the right, often in association with the liberal centre, with intervals of centre-left government which usually ended up in premature failure and internal strife.

This was broadly true, for the entire period from 1945 until the 1980s, of Britain, France, Germany, Italy, Australia, New Zealand ? and also of the United States at presidential level.

And it continued to be true for many of us until the 1990s.

In the entire 20th century until 1997, Labour in Britain won only two elections decisively.

When Labour lost its third election in a row in 1959, a famous study after the election had the title: Must Labour Lose? The answer, to many, was 'yes' - because society even then in 1959, it was argued, had moved too far away from the left heartland of an organised and disadvantaged manual workforce to be a viable competitor to a Conservative Party which had captured the tide of aspiration and modernisation, and had a philosophy to match.

Our government in Britain has been in power only six years - a short time in comparison with many previous Conservative governments - yet is about to become the longest serving Labour government in the history of this country.

And in most of the countries represented here, the surprise now is when the left loses an election, not when it wins it.

The reason for that is simple: At the level of ideas and strategy, the left, in most of our countries, has recast itself into a broad, non-doctrinaire progressive movement.

We have sought to apply our values - not outdated doctrine - to the world as it is, and opened out politically and socially to the middle ground of progressive opinion.

Where we have done so fully and systematically, we have become strongly competitive, if not always victorious.

Being in power is tough.

It involves tough choices; compromises; crises that you anticipate, crises that you don't.

But used for a progressive purpose, it is always better than opposition.

I met a group of local residents in Garston, Liverpool last week.

It's one of the poorest parts of the city.

But I met them in a new community centre, next to a newly built school, next to a health care centre, properly staffed by NHS staff.

Sure, they still have major problems to overcome.

But where there was no hope, there is hope now.

And it only happened because we in the British Labour Party had the courage to change, to become New Labour and to govern in a way that helped economic growth and social justice develop together.

There is no other way.