After months of worry over failed bank Northern Rock, Prime Minister Gordon Brown will this weekend want to seize the initiative from the opposition and prepare his party for local government elections in May.

Labour's spring conference starting on Friday in Birmingham promises to be a sober affair compared to the fanfare of last October's meeting when Brown was enjoying a massive poll lead and party strategists were advocating a snap parliamentary election.

The euphoric mood soon turned sour as the public punished the 57-year-old Brown for perceived dithering over calling an election, a blunder over missing personal data, and Northern Rock, the first bank run in more than 140 years.

However, Brown's ratings appear to have stabilised - even after the government was forced to nationalise Northern Rock this month - and he now wants to move the focus back to issues such as health, education and crime.

The May local elections will be Labour's biggest test against the electorate since Brown took over uncontested from Tony Blair last June and will be key in helping form strategy on when to call the next national poll.

It has to be called by May 2010 at the latest.

But opposition Conservative leader David Cameron will also be under pressure this May to do well enough to show he has a real chance of winning an election.

COUNTING CHICKENS

Conservatives strategists say they are not counting their chickens yet. They are all too aware they underestimated Brown before he took over from Blair and suffered the consequences.

"We've had a bit of luck but we aren't going to underestimate him again. The election could still be some way off and the government is sure to turn its full power on as many initiatives as it can," one senior Conservative said.

On Thursday, Labour announced plans to get the private sector involved in the welfare system. Brown also called this week for people with drug problems to have their benefits docked if they do not seek treatment.

Binge drinking and cheap alcohol have come under the spotlight along with tougher rules for people wanting to come to Britain - all policies likely to appeal to traditional Conservative, right-wing voters.

The budget on March 12 will also give the government another chance to announce cuts in the headline rate of income and corporation tax due to come into effect in April that were first unveiled last year.

But it is the economy that poses the biggest challenge for Brown as a global credit crunch has increased the risk of a housing market crash. The hope is that a short economic slowdown this year with falling interest rates will be followed by an economic upswing next year.

That is by no means a guaranteed outcome and Brown's reputation for safe economic stewardship remains in the balance.

The change in U.S. president in early 2009 will also help the government draw a final line under the unpopular Iraq war.

Labour strategists hope bringing the troops home and a rebound in the economy will form enough of a springboard for a parliamentary election some time next year.

They will be watching the polls closely.