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It鈥檚 wonderful to be here at the late Queen Mother鈥檚 favorite race course, looking back over the glorious changing landscape of the capital, with the Shard shimmering in the distance.

Thinking not about the famous feats of Arkle or Desert Orchid, but the great achievements of our 7 local thoroughbreds. I know it is corny, but better to be called thoroughbreds than old nags.

You鈥檝e asked me to talk about the challenges ahead, so, if you鈥檒l forgive a horse racing analogy: the stakes are high and the hurdles steep and the going sometimes sticky.

The deficit has fallen by a quarter in just 2 years but last year we still borrowed 拢108 billion, in the region of the spending power of local authorities.

Some people say it is impossible to improve services when budgets are being reduced, but frankly, councils have shown that necessity is often the mother of invention.

You鈥檝e shown though, well run councils can make savings and improve services at the same time, with a bit of innovation and imagination thrown in.

I could pick out any number of examples of your good work:

• Surrey鈥檚 procurement team managed to claw back nearly 拢56 million simply by doing better deals
• Hampshire is working with neighbouring authorities and members of the public sector such as police and fire to co-locate back-offices, share services and reduce operating costs by 20%
• the South East 7鈥檚 approach to special educational is really making a difference to parents and children

Now 1 parent wrote about their son who has learning difficulties. He is: 鈥渟tarting to develop relationships outside the family, where he is safe and being part of his community - he is one step closer to doing things that 11 year old boys should be doing.鈥� I think that鈥檚 a great thing.

Now over the past 3 years we鈥檙e putting reforms in place that mean - as long as you keep local people are uppermost in your minds - you鈥檒l find local conditions in your favour.

We passed on structural change or more particularly passed on restructuring change. If we鈥檇 done that your thinking would have become dominated by governance and process.

In local government, as in central government, government governance and process are like the 鈥楥reatures from the Black Lagoon鈥� that sucks you down into the dark abyss stamping out all available life and original thought. Nor is it what matters to people.

It鈥檚 important to change the substance first not the structure. You only get real change when structures catch up with reality.

We had a different approach.

First we took steps to free you as much as possible from Whitehall. Abolishing the regional straitjackets, costly Comprehensive Area Assessments and the 100s of top-down targets in Local Area Agreements.

Second we introduced the . So along with the General Power of Competence, you practically have no restrictions on what you can do.

People sometimes misunderstand the Act. It wasn鈥檛 just about passing power on to local authorities and beyond. It was about passing power down to local authorities to community groups and residents.

Local folk now have the community right to challenge as well as reformed planning. And I think it is something of an unknown change that 450 communities are now working together to put in place a neighbourhood plan.

And today the very first is subject to a referendum in the Lake District. They have the power to understand to effect change in their local area and to make a difference.

Third we gave you much more control over your local budgets. Removing ring fences and rewarding people who build more houses, create more jobs and start up new businesses.

Starting with the new homes bonus and repatriation of business rates. From around a third of your budget raised locally it鈥檚 now more than two-thirds today.

So we鈥檝e rebalanced the system. Finally, rewarding success not failure. So:

1. loosening Whitehall control
2. introduced the Localism Act
3. given you local control of budgets

And fourthly, we brought in Local Enterprise Partnerships.

Local Enterprise Partnerships are a way for local authorities to work together sharing finance, and particularly sharing sovereignty to co-ordinate functional economic areas.

Growing Places is a perfect example of how we expect things to work in practice. There is legally a single lead authority acting on behalf of others. In practice, to make things work you have to work with the Local Enterprise Partnership to identify the practices that benefit everyone.

There are plenty of examples of this in the south. Oxfordshire Local Enterprise Partnership is one, using 拢8.4 million from the government鈥檚 Growing Places Fund to 鈥榰nlock鈥� critical infrastructure projects.

I think the next logical step is for local authorities and Local Enterprise Partnerships to merge their business rates.

So what next?

We鈥檝e already seen that local authorities are the most flexible, most adaptable, most innovative parts of our constitution.

And when I look at what鈥檚 happening with Troubled Families it鈥檚 clear that local authorities are much, much more capable of productive collaboration than Whitehall itself.

Local government, particularly the magnificent South East, have often been the first to identify where there is wasteful duplication whether in highways maintenance or in procurement.

You鈥檝e nothing to prove. So you鈥檝e proved yourselves. And that鈥檚 why you can expect plenty more from us, both in terms of freedom and powers.

Now we鈥檝e seen the first wave of . And there are roughly 20 more to come. I expect even more to follow, because the clamour for powers is growing all the time.

Similarly Community Budgets have shown how it鈥檚 possible to transform services and make a difference to local people.

That combination of these 2 - City Deals and Community Budgets - is where this relationship is going to go. I鈥檝e said to you before I see neighbourhoods as the central building block and these will be an important way forward to arrive at that.

And we鈥檇 like to help you do to share services and growth across the wider public sector, because the beneficiaries are always local residents.

I鈥檝e little doubt that Lord Heseltine鈥檚 idea of having a single pot of money that supports much greater working across local authorities and other public bodies is a sign of things to come.

In other words, we鈥檙e going to keep fighting your corner, because only local authorities can transform their local services.

Local authorities have got the right connections. They鈥檝e got the right contacts. They鈥檙e elected and accountable. Above all, they鈥檙e got the track record of achievement, to deliver a far, far, better deal on behalf of the people you serve.

It鈥檚 been a long time since Tip O鈥橬eill said 鈥渁ll politics is local鈥�. It was in the context of showing that the success of national policies is tied to the ability to understand and influence local services.

Whitehall doesn鈥檛 understand the pinch points, where it can make a difference at a local level, but that鈥檚 what local authorities are all about.

We鈥檝e seen with the Growing Places Fund how they can work with Local Enterprise Partnerships to take the strategic view.

And even in difficult times this represents the future. Because the future is bound to be local.