The three-day event will see Labour setting the battle lines with the Conservatives and Liberal Democrats for this June's local and European elections.

But it has been overshadowed by the bombings in Madrid - something likely to dominate Home Secretary David Blunkett's conference speech on Friday afternoon.

Later, Chancellor Gordon Brown is expected to signal some of the key themes for next week's Budget.

Domestic issues

Prime Minister Tony Blair arrived at the conference centre at Friday lunchtime, and stressed Britain's solidarity with Spain in the fight against terrorism in the wake of the Madrid tragedy.

Labour's Europe, Local Government, Women's and Rural Conference will open with a two minute silence in memory of the victims of Thursday's blasts.

Mr Brown will use his speech to put "locking in" economic stability and investing in science, skills and enterprise at the heart of his Budget.

Prescott looks set to attack council tax rises

The chancellor will say: "The reason we put stability first is not because we favour stability for its own sake, but because we know what the short term indiscipline of Tory economics means.

"We know how recessions mean unaffordable mortgage rates, negative equity and repossession.

Ahead of the conference, Labour chairman Ian McCartney said the conference gave the perfect opportunity to refocus on the challenges ahead.

He wanted activists to leave the conference ready to "take the battle to Michael Howard with confidence".

Mr McCartney added: "We need to show this weekend that we have moved from being a natural party of opposition to a natural party of government."

Tax battle

The formal launch of Labour's local election campaign will not be part of the conference.

But Deputy Prime Minister John Prescott is likely use his speech to set the tracks for a campaign accusing Tory and Lib Dem councils of imposing inflation-busting council tax rises.

Ministers are expected to decide which councils face having their tax rises capped within the next two weeks.

The series of Big Conversation events at the conference follows cabinet minister Peter Hain's critique in a pamphlet published this week.

Engagement problems

Mr Hain said part of the problems which caused the rebellion over university top-up fees was a failure to involve grassroots members and backbench MPs at an early enough stage.

He told BBC Radio 4's World At One: "We are far too centralised and we ought to empower our party members.

"In the end, unless members have ownership of policy and unless the government is able to explain the sometimes tough choices, for example on tuition fees, that we face over developing new policy to meet challenges, then you can't have a meeting of minds."

Reform drive

In his foreword to the conference programme, Mr Blair says there are "lessons to be learnt and bridges to be rebuilt".

But pushing a reform agenda, the prime minister continues: "There must be no wavering in our political purpose."

The Conservative spring conference last week saw Michael Howard attack Labour for high taxes and wasteful spending.

Ministers will this week hit back, accusing the Tories of wanting to slash key public services and take Britain out of Europe.