THE GUARDIAN

The following is the full text of the prime minister's address today at St Mary's Island Community Centre, Chatham, Kent

I want to talk today about the central purpose of New Labour - which is to increase personal prosperity and well-being, not just for a few but for all. By prosperity I mean both the income and wealth of individuals and their families, and the opportunity and security available to them through radically improved public services and a reformed welfare state.

The Labour Party today, almost 8 consecutive years into government, something it has never come near achieving before, is more ideologically united than at any time in its 100 year history. Yet it is undoubtedly a new and changed Labour Party from what went before.

It was John Prescott who coined the phrase 'traditional values in a modern setting' to describe New Labour. The values of the Party are absolutely Labour. The values hold firm. The policies to implement them have changed radically from the past. At long last, the unchanging principles have been liberated from outdated thinking and policy which necessarily has had to change because the world and society have changed.

This has allowed us to do two things. First, it has returned us to our central purpose: to put power, wealth and opportunity in the hands of the many, not the few, and as individuals. Our purpose is not to constrain individual opportunity and prosperity in the interests of society as a whole. On the contrary, it is to use the power of society acting together to enable prosperity to spread, not just to a few but to all.

Secondly, New Labour, by emphasising new means to achieve old ends, has been able to make far reaching reforms that previous Labour governments would have found hard to do in order to improve individual prosperity and well-being.

What I have learned above all else from the experience of Government is that we have succeeded most when most holding true to New Labour principles. New Labour is not an electoral device. It has been electorally successful because it is based on a sound idea: the modern application of progressive values.

Progressive values - opening up opportunity not for a privileged few but for everyone to make the most of themselves, to reward and help not just the elite at the top but the hard working families who are the backbone of the country - these are the values of the modern age: an age in which how you succeed by your own merits should matter more than your class or background, and where countries will only succeed by using the potential of all their people, their human capital.

But the speed of change in economy, technology and society means that these values can only be applied if we embrace the future. A party that doesn't understand the future can't govern it. Hence, the need for reform.

Eight years in - with much success behind us but still huge challenges ahead - we know what works. New Labour works. But we have more to do to fulfil the promise of that early vision - to do what it takes to further improve the lives and living standards of the British people, all of them, not some of them, unshackled by old thinking, vested interests or political correctness, left or right.

Everything we do must be for this one central purpose: increased personal prosperity and well-being. We need to show how we will continue to make individuals and their families better off in living standards and in quality of life. Prosperity for the individual whatever their background and starting point in life. Prosperity for families as they bring up their children, struggle with work and family life, work their way up and take responsibility for their older and retired members. Not just to create a stronger and better country but to give you, the individual, the opportunity to fulfil your aspiration and ambition.

In describing what we have done and what we need to do in the future, I am not in the least complacent about the challenge ahead or the support of the British people. A third term needs to be earned. Life is tough for people. As you start to solve one problem another emerges.

Yes, we have economic stability: but people still work very hard and often long hours to keep home and family together and the economy and job market keep changing.

Yes, we have helped pensioners but now the worry is future pensions.

Yes, we have improved primary schools and cut waiting lists but we face continuing challenges on truancy and MRSA.

Yes, crime has fallen, but tell that to 3 million victims each year; and new forms of gun and knife crime are uglier than what went before.

It is hard sometimes to lift the head and see the big picture, let alone describe how it can be improved. But the case I make today is this. Britain is, despite it all, working, and we can, if we are unremittingly New Labour in our approach, enhance this personal prosperity and spread it further.

The first key New Labour reform came the day after the 1997 election, when we decided to give independence to the Bank of England, requiring it to set interest rates according to the needs of the economy, not the direction or short-term advantage of the government.

Since that reform, inflation has been consistently low and stable. Interest rates now stand at 4.75%. Since 1997 they have averaged just over 5% - half the 11% average under the last Conservative government.

That means mortgage payers paying out an average of £315 less a month on their mortgage - £3,700 less a year, after tax.

Result? Home-owners are better off. Home-ownership has increased, particularly among lower-income families: 1.5m new home-owners since 1997, including nearly half a million extra council tenants who have chosen to buy their homes since 1997.

And lower mortgage payments, together with low inflation, have enabled new forms of worthwhile saving to flourish. More than 16 million individuals now have ISAs - £150bn invested in them since 1999, extending to far more of the population than the old TESSAs, with twice as many under-25s taking out ISAs compared to TESSAs, and a third again as many from low-income groups.

The Child Trust Fund, available from this April, will extend this savings and assets culture more widely still - an endowment of up to £500 for every child born since 2002, which parents and friends can supplement tax free year by up to £1,200 a year more.

Alongside independence for the Bank of England, Gordon Brown - the most successful British post-war Chancellor - put in place in 1997 a whole new framework for economic stability. This included the new fiscal framework, with a tight control on public spending within a new three-year budget and tax horizon; corporation and other business tax reductions; a sensible approach to migration to supply economic needs - all together creating one of the most favourable employment and business investment climates in the developed world.

Result? There are 2 million more adults in employment than in 1997. Employment now stands at record levels. After tax and benefit changes the average household is £800 a year better off in real terms than in 1997, with real average earnings increasing twice as fast since 1997 than in the seven years before 1997. About 500 new businesses are being created every day - 164,500 more VAT registered businesses than in 1997. There are 113,000 more self-employed. The number of patents filed by universities up seven-fold since 1997.

Let me make a wider political point about these economic changes. As a result of our economic record, Labour is now the party of economic stability, and it is the Tories who can't be trusted on the economy. This is the single biggest strategic shift in British politics in the past ten years. That's why the economy was always going to be centre stage in any possible election. Those posters unveiled by Gordon, John and Alan this week are just the beginning. Then there are our reforms to make work pay - the minimum wage, now increased to £4.85 an hour; the new tax credits and other tax and benefit changes to favour work and help those with children; the New Deals, focused on youth unemployment, lone parents and other priority groups.

Result? There are now more than a million in work benefiting from the minimum wage, two-thirds of them women. Tax credits are benefiting 6 million families and 10 million children. The income of the poorest fifth of families has increased by £3,000 a year - or nearly a fifth - in real terms.

The needs of parents with children have been a consistent priority in our reforms, to support working parents and to promote the prosperity of children themselves.

So in addition to the tax credits and New Deals, since 1997 universal child benefit has been increased by 25% for the first child; maternity pay has been increased to £100 a week, and extended from 14 weeks to 6 months; an extra entitlement of six months unpaid leave has been introduced; paid paternity leave has been introduced for the first time; new rights have been created for employees to ask for flexible hours; universal part-time nursery places are now available for three and four year-olds; and Sure Start is offering full-time care and support in many of the poorest neighbourhoods.

The result? Not only the record employment levels I have already mentioned, particularly for women, which these reforms have helped make possible. But also 700,000 fewer children than in 1997 in relative poverty, with fully two-thirds of the reduction due to increased employment of lone parents and couples with children.

There is also greater prosperity for pensioners.

The future of employer pension provision, in the face of increased life expectancy and other pressures, is a major issue, and underpinning security for our pensioners will be one of our main concerns if we are elected for a third term. But since 1997 pensioners at large have more than shared in the wider growth in prosperity. Pensioner households are on average nearly £1,400 a year better off, in real terms - and the poorest tenth of households more than £2,000 a year better off. Government now spends £10bn a year more on pensioners in real terms than in 1997 - nearly £7bn more than if the basic state pension had been linked to earnings, through the commitment we have made to winter payments, free TV licences, the pensioner credit, and the minimum income guarantee for pensioners. Absolute pension poverty is down by two-thirds, and two-thirds of pensioners - more than ever before - now own their homes outright.

The core public services of health, education and law and order are equally vital to individual and national prosperity.

Public services are, of course, the fruit of collective action - taxes paid by all; services provided to all. But let us be absolutely clear in our understanding of the purpose of public services. The services may be collectively financed - and part of their quality depends upon their inclusive character, open to all, shaping the communities which we all share together. But we don't pay taxes for public services simply to invest in a good cause. To justify the tax paid by each individual, services must deliver for the individual, offering value for money which is as good - if not better - than that which the individual could provide for themselves if they were able.

It is this understanding which has driven New Labour's radical reform of public services; reform to put the individual citizen - the patient, the parent, the pupil, the law-abiding citizen - at the centre of each public service, with a service reformed to meet their individual requirements.

In 1997 the NHS was on the verge of collapse: waiting lists of over a million; long waits of 18 months for some essential operations; far too few doctors and nurses; half of the NHS estate built before the creation of the NHS itself half a century previously. All of this because our health investment was far below the levels of most other developed nations, and the NHS was too much of a monolith and too unresponsive to patient demands.

Since 1997, the NHS budget has more than doubled in cash terms, and will by 2008 beat the European average in relative terms. Under the reform programme pioneered by Alan Milburn and John Reid, each part of this new investment has driven improvement. More than 20,000 extra doctors and 78,000 more nurses, but with new contracts and more flexible working practices. Unprecedented investment in facilities - not only conventional hospitals, but also new PFI approaches, and a wholly new stream of free-standing Diagnostic and Treatment Centres focusing on the treatment of specific conditions, some provided by the independent sector, which have increased patient choice and driven significant improvements in productivity.

The result? Waiting lists are down by 300,000 since 1997. Waits of more than 9 months have been virtually eliminated; the maximum waiting time limit from the point of GP referral to the start of hospital treatment is being reduced year by year, and will go down to 18 weeks by 2008, with unprecedented choice for patients in their place and time of treatment. A bigger expansion of free NHS care has taken place under this government than in any equivalent period since the creation of the NHS itself. Deaths from cancer down 12 per cent: deaths from heart disease down 23 per cent.

However, since 1997 the political argument hasn't just been about the level of funding for the NHS. There has also been a campaign, supported by many Tories and even some Liberal Democrats, to discredit the NHS and to replace it with an insurance-based system, on the argument that this would provide a superior and more cost-effective service.

Our strategy, true to our values, has been to achieve a modern personalised health service by reforming - not abandoning - the NHS as a tax-financed service providing care free at the point of use. As we progress with our reforms, it is increasingly clear that the alternative - a quick fix of appearing to reduce taxes, only to hike up health insurance premiums for employers and individuals as part of an ill-considered abolition of the NHS - would have been a profound mistake. Just look at what is happening in countries which rely on insurance. The United States government's annual report on health spending, just out, shows that premiums for private health insurance rose by 10.6 per cent in 2002 and 9.3 per cent in 2003 - yet, it says, 'administrative costs and insurer profits accelerated as benefit growth decelerated.'

There is a huge programme of change still to be carried through in the NHS. But we have got the strategic reform direction right; and prosperity - a health service delivering for the individual, and a health system which maximises our economic potential as a nation - is rising in consequence.

So too in education, where David Blunkett laid the reform path in the first term which has continued since.

Alongside sustained new investment, reform is improving results at every level - and raising the future prosperity of the individuals who are achieving qualifications in record numbers. 84,000 more 11 year olds passing national tests in maths than in 1997; 60,000 more in English; 50,000 more 16 year olds achieving 5 or more good GCSE passes, with higher results in the new specialist schools than non-specialist comprehensives; 250,000 more apprenticeship places; record numbers going on to further education. As for higher education, an increasingly important driver of prosperity for individuals and the country at large, not only record investment in students and research, but a new student finance system now in place - thanks to the difficult student finance reforms we enacted last year - which will enable us to increase student numbers and university funding on a fair co-payment basis with graduates. Our higher education changes have been described by the OECD as a 'model reform' for other countries to follow.

So Britain is working because the people of Britain are hard-working. But Britain is also working because New Labour is working. And it is all working to one end - individual and collective prosperity, each as important as the other, each possible because of the other.

As a party, it is an achievement to celebrate. Just think back just 20 years - all the talk, on the right and left of British politics, of the British disease; and the only remedies on offer with any popularity being right-wing prescriptions of incessant privatisation so that the better-off had some chance of providing excellence for themselves in place of public services providing mediocrity for all.

Now the OECD publishes studies showing Britain pulling ahead of its rival economies, having already overtaken France, Germany and Italy in living standards; and the respected German paper, the Frankfurther Allgemeine, writes that 'people who move to Britain these days are not asked about the German model any more; rather, they experience a more modern, more competitive and more flexible society than existed ten years ago.'

Over the coming months, we will hammer home all that we have done to boost prosperity in every part of Britain. And the straight choice that Britain faces: New Labour determined to extend prosperity ever wider, or a Conservative government concerned only with a few at the top, which would turn the clock back to boom and bust and intensifying social divisions.

There is so much still to do. But now it is clear how we can do it. Our experience of the economy tells us stability must never be put at risk. Our experience of business tells us that Government's role is not to try to run it or to over-regulate it but to provide the right climate for skills, science and technology, the things that will boost productivity and add value to goods and services. Our experience of NHS and education reform tells us the more diversity of supply and patient and parent choice, the higher the standards of service, and the satisfaction of the consumer.

Our experience of law and order reform tells us community policing and modern laws that, from ASB to organised crime, re-weight the law definitively in favour of the law-abiding citizens, are the only way to make people safer and feel safer.

Our experience of welfare reform is that only a combination of help to work and duty to work tackles unemployment in the way we need.

We are still a long way from completing our journey. Too many families still find it too hard. Too many people still don't work who could work. Too many children still fail basic literacy and numeracy. Still only just over half of sixteen year olds get 5 good GSCEs. Many young people find it hard to get a foot on the housing ladder. A six month maximum wait for NHS treatment is better than 18 months but it is nowhere near good enough.

I know how insecure people feel, often elderly people, vulnerable in their own homes. And business may like the stability but regulation is no longer an incidental issue. The task is immense but the confidence is there to do it. We have to earn a third term - and earn it on the basis that people believe they will be better off through the reforms we will carry through in that third term. So the New Labour manifesto will be aimed at all sections of society - for those struggling to get on every bit as much as for those struggling to get by. It will reinforce the powerful progressive New Labour coalition have built over the past ten years, and address anew those concerns which threaten our prosperity or hold people back.

Over the coming weeks and months, we will be setting out plans in key areas:

For expanding prosperity in the economy and business

For even stronger reform in the NHS and schools

For the new frontiers of the welfare state, especially childcare and under-5 provision

For a step-change in vocational skills and training

For those who remain economically inactive - particularly those on Incapacity Benefit who require support to get back into appropriate work.

For first-time buyers particularly in lower income groups, and more generally across the south-east of England, where it can be hard to get on the housing ladder.

For extending asset ownership, and giving more people a real stake in society.

For meeting the challenges of an ageing population by giving older people more security and independence

For tackling anti-social behaviour.

For reinvigorating local government and our local communities.

We will also continue to address real concerns about issues such as immigration and asylum, and not make the mistake of confusing public concern with prejudice.

In our third term we can achieve an unprecedented widening of opportunity and prosperity.

For the first time ever a whole generation growing up with unbroken economic stability.

Every family - not just the fortunate few - knowing their children will have an inheritance at adulthood.

Every pupil in every secondary school guaranteed a place in university or a quality apprenticeship.

Every adult - including those who missed out at school - able to get the skills then need to advance.

Home ownership extended to its highest ever level and to families who have never before been able to afford it.

The highest ever level of employment with everyone in work guaranteed a decent wage and decent conditions.

Together, these are goals we could not have set in 1997 achievements beyond our expectations in 2001.

Our economy is stronger and more stable than for generations. Mortgage costs, inflation and unemployment are lower than for decades. Today, Britain enjoys the longest period of economic growth for two centuries.

We will continue to govern as New Labour because only New Labour combines greater aspiration, ambition and opportunity for the individual with social compassion.

As we have shown, over the past seven and a half years, for the first time a governing party can combine a well-run economy with sustained investment in schools, hospitals and the fight against crime, to achieve greater personal prosperity for all.

A more prosperous Britain is our strongest claim to re-election for a third term. It is a vindication of our values and our reforms and, if we earn the renewed support of the British people, it points the way to an unremittingly New Labour third term. Guardian Unlimited © Guardian Newspapers Limited 2005