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 find more spending cuts to reduce the budget deficit up to the next election and beyond, Prime Minister David Cameron said on Sunday, underlining the government's tough task of fixing the economy and winning back waning public support.

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

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

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

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

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

"I want us to be the party that absolutely levels with the British public and talks very plainly and straightly about what needs to be done, because the fact is we have to find those spending reductions."

Finance minister George Osborne will announce new economic and borrowing forecasts on Dec. 5. The government says it must keep its resolve to slash spending to safeguard Britain's low borrowing costs.

Abandoning their austerity plan would also prove politically disastrous for the Conservatives, who staked their 2010 election pitch on it. But Labour has pulled ahead of Cameron's party due to public unease with the austerity drive, while support has dived for the Liberal Democrats.

When asked whether Britain would have to reduce welfare spending, Cameron said: "We have to look at things like the welfare budget... We have capped welfare but we need to go further."


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

To pacify the anti-EU wing of his party, Cameron threatened to use Britain's veto if the 27-nation bloc seeks to inflate its 2014-2020 budget.

He suggested the EU should at some point split its budget into two - one for the euro zone and one for the countries outside the common currency, including Britain.

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

"People in Europe know I mean what I say. I sat round that table - 27 countries, 26 of them signing up to a treaty - and I said this is not in Britain's interest. I don't care how much pressure you put on, I'm not signing, we are not having it. They know what I am capable of saying, no, and if I don't get a good deal 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, in 2013/14, for a freezing of council tax - which funds neighbourhood services such as refuse collection.

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

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

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