Cameron warns of more UK budget cuts as support wanes

* Government must find 16 bln pounds of cuts for 2015-16

* Cameron appeals to powerful anti-EU Conservatives

* Labour leads Cameron's party in polls

By Guy Faulconbridge and Matt Falloon

BIRMINGHAM, England, Oct 7 (Reuters) - Britain must findmore spending cuts to reduce the budget deficit up to the nextelection and beyond, Prime Minister David Cameron said onSunday, underlining the government's tough task of fixing theeconomy and winning back waning public support.

Cameron also said he would use Britain's veto to scupperEuropean Union budget talks if necessary, appealing to thepowerful eurosceptic wing of his Conservatives, who are trailingthe opposition Labour Party in opinion polls.

Speaking before the Conservative Party conference, Cameronsaid his government was determined to stick to its plan to erasewhat was a record budget deficit when he came to power in 2010.

His coalition of Conservatives and Liberal Democrats haspresided over Britain's return to recession, raising speculationthat it may miss its own targets for cutting the deficit.

Cameron backed comments by Liberal Democrat Deputy PrimeMinister Nick Clegg that whoever won the next election in 2015would have to impose another round of austerity because of thesize of the economic problem.

"Yes, he is right and actually it happens before thatbecause we have to find 16 billion pounds of spending reductionsfor the year 2015-16. It starts before the general election andwe need to do that," Cameron told the BBC.

"I want us to be the party that absolutely levels with theBritish public and talks very plainly and straightly about whatneeds to be done, because the fact is we have to find thosespending reductions."

Finance minister George Osborne will announce new economicand borrowing forecasts on Dec. 5. The government says it mustkeep its resolve to slash spending to safeguard Britain's lowborrowing costs.

Abandoning their austerity plan would also prove politicallydisastrous for the Conservatives, who staked their 2010 electionpitch on it. But Labour has pulled ahead of Cameron's party dueto public unease with the austerity drive, while support hasdived for the Liberal Democrats.

When asked whether Britain would have to reduce welfarespending, Cameron said: "We have to look at things like thewelfare budget... We have capped welfare but we need to gofurther."


Beyond the economy, Cameron also faces problems in hiscentre-right party, with some arguing he has not taken a toughenough line on Europe and a few calling for a new leader, suchas Boris Johnson, the popular Conservative London Mayor.

To pacify the anti-EU wing of his party, Cameron threatenedto use Britain's veto if the 27-nation bloc seeks to inflate its2014-2020 budget.

He suggested the EU should at some point split its budgetinto two - one for the euro zone and one for the countriesoutside the common currency, including Britain.

Cameron, much to the delight of the anti-EU wing, used theveto last year to keep Britain out of a European fiscal andeconomic pact aimed at resolving the euro zone debt crisis.

"People in Europe know I mean what I say. I sat round thattable - 27 countries, 26 of them signing up to a treaty - and Isaid this is not in Britain's interest. I don't care how muchpressure you put on, I'm not signing, we are not having it. Theyknow what I am capable of saying, no, and if I don't get a gooddeal I'll say no again."

Cameron, who is due to speak to the conference on Wednesday,offered 270 million pounds to local administrations to pay, in2013/14, for a freezing of council tax - which fundsneighbourhood services such as refuse collection.

Rail fare increases will also be capped at retail priceinflation plus 1 percent in 2013 and 2014, paid for by savingsat the Transport Ministry.

Both measures are meant to ease pressure on householdsduring the recession, without softening fiscal policy.

(Additional reporting by Tim Castle; Writing by David Stamp;editing by Ron Askew)