Chancellor Gordon Brown has praised the state of the economy but warned that difficult choices lie ahead if Britain is to continue to prosper.
Mr Brown said the UK has to grab its chance to change for the better
In his annual Mansion House address, Mr Brown warned that clinging to the past would be "fundamentally wrong".
Instead the UK must look to change its pension, transport, infrastructure, energy and welfare policies so it can meet the challenges of globalisation.
Long-term, consensus-backed plans must replace short-term fixes, he said.
A bit battered
"The all too easy, but fundamentally wrong, temptation for political parties is to cling to the past or to sidestep difficult long-term choices," Mr Brown explained to an audience made up mostly of financiers from the City of London.
He said that in an insecure world the government "must always have the strength to take all necessary long term decisions for stability and security".
Mr Brown, who is seen as the main candidate to succeed Prime Minister Tony Blair, made his comments as his Labour Party faces a dip in popularity, analysts said.
He is also faced with concerns about an accelerating rate of inflation that has been pushed higher by record fuel costs and is threatening to hike up global interest rates and crimp world economic growth.
Mr Brown tried to ease fears and said that as well as ensuring a low and stable rate of inflation, he also wanted stable industrial relations, a competitive tax regime and a predictable and light-touch regulatory environment.
Looking to the future, Mr Brown said deep reforms would be key to ensuring the UK was flexible enough to withstand increased pressures from lower-cost producers in countries including China and India.
"Britain will need a stronger sense of national purpose, clear long-term national direction and a sense of our destiny that will enable us to move beyond the old short-termism that held us back in the past," Mr Brown explained.
Pension reform is already under way and it is necessary to now focus on other areas, with reviews of the UK's infrastructure, planning and energy systems due in coming months.
"Britain will have to become a more flexible economy - more ready to change, with more local and regional pay flexibility, better equipped for the long term, with more focus on the jobs and skills of the future," Mr Brown said.
"In some economies energies are devoted to sheltering the last job, when the job is redundant," he added.
"In the successful economies of the future like Britain, energies will be focused on helping people move into the next job."
Open and successful
With this in mind, Mr Brown said it would be vital to improve the skills and education of the UK's workforce so it could change quickly to take up and prosper with new technologies.
Turning his attention outwards, Mr Brown said the UK also needed to redefine its role in Europe.
"Some present the issue of Europe as in or out, empty chair or total subjugation. I see it differently," he said.
Even though the UK decided not to enter the single European currency, the euro, it was in Britain's benefit "to complete the single market in utilities, energy, telecommunications and services generally and in particular financial services".
And instead of lamenting a lack of reform on the Continent, the UK should look to work more closely with European partners, promoting changes and leading the way, Mr Brown said.
In the same way that the City of London had helped push innovation and independence in the financial services industry, companies and policymakers should look to export their beliefs and practices abroad, he added.