The Audit Commission will continue to monitor progress in 2005

In 2002, the Audit Commission gave North East Lincolnshire Council it's lowest rating.

But in a new report, it says leadership has improved and the council's finances are looking healthier.

Chief executive George Krawiec said the authority had a long way to go, but the said the "building blocks for a brighter future" were in place.

But it added that progress had been slow and the council faced "significant challenges in modernising its culture".

Audit Commission senior manager Sue Sunderland said: "The council has made progress over the last year by strengthening its own capacity and improving the way it works.

The building blocks for a brighter future have been put in place Council chief executive George Krawiec

"The effects of its efforts are not yet being felt by the public and, although the early signs are encouraging, it recognises that there is still a lot to do.

"We are still looking to see improvements in key areas such as education and community safety."

The inspectors found improvements in benefits processing, planning and improving results in waste management and social care.

Steps had been taken to improve the quality of the public sector housing stock and to drive the council's approach to regeneration but these were not yet making "a tangible difference to local people".

'Tough decisions'

Financial management was better although the council had failed to produce an accurate set of accounts for the second year running.

Mr Krawiec said: "It is very encouraging that independent inspectors from the Audit Commission have recognised the authority is on the road to recovery.

"Tough decisions have been made and a lot of hard work has been put in to help start to turn this authority round from one which was branded 'poor' in 2002, to one which aspires to be excellent."

Deputy council leader Keith Brookes said: "The public must not forget the deplorable position this council was in when the current administration took over.

"Many will remember my words describing the situation like turning round a battleship. It will take many years."