The seeds of a new spirit of partnership and collaboration had been sown over the last decade, and they were now bearing fruit, the deputy prime minister said.
Developing his theme of competitiveness, Mr Heseltine said: 'The government can set the framework, but success in individual regions and individual towns and cities is not achieved in Westminster or Whitehall, but on the ground.
'Local needs and priorities need to be assessed and delivered locally.'
He claimed challenge schemes under the single regeneration budget had been a success, promoting competition and partnership. 'Local authorities must be a key element in all such partnerships, as a focus for leadership, as an enabler, stimulating and assisting other agencies and organisations to come together and agree the action necessary to grasp the opportunities in their areas.'
The deputy prime minister talked up the role of local authorities as an employer, in regeneration, and as an education provider, and he urged councils to take full advantage of the private finance initiative.
He said last year's budget 'fulfilled our pledge to keep education at the top of our priorities. Total funding for schools this year is up by almost 5% over 1995/96 levels. We have increased spending per pupil, a real increase of nearly 50% since 1979.'
But this money needed to be well spent, so the government had issued guidance on benchmarking school budgets: 'I ask all LEAs to provide schools with the comparative date needed to bring about improvements in pupil attainment.'
Expanding this theme, Mr Heseltine said: 'I urge you all to continue to benchmark your performance against others. To learn from best practice. To achieve charter mark standards for the services that you provide - to go alongside the 165 already awarded to local authorities.'
And he encouraged delegates to develop secondment arrangements with the private sector.
Turning to the white paper on central local relations, Mr Heseltine said the measures would help councils fulfil their local community leadership role. 'In particular we are reviving the work which I helped to launch in 1992 on the governance and leadership of local authorities.'
'I do not doubt that there will always be tensions between central and local government on matters of policy and practice. But, he said: 'I believe that these tensions are best resolved in a spirit of partnership and collaboration. The seeds of this new relationship have been sown over the last decade. They are bearing fruit.'
Noting the 'most exciting economic prospects I have seen in my ministerial career,' the deputy prime minister finished by telling delegates: 'John Gummer and I look forward to working with you in the years to come.'