David Cameron warns public sector over Budget cuts

David Cameron says his claims about a coalition government were wrong

Prime Minister David Cameron has said the budget deficit will not be dealt with by "just hitting either the rich or the welfare scrounger".

Speaking in the Times ahead of next week's emergency Budget, Mr Cameron signalled that public sector pay and pensions would have to be restrained.

And he said he "enjoyed proving himself wrong" after having claimed a coalition government would damage the economy.

Labour's Ed Miliband says the budget will put the coalition under strain.

Mr Cameron said next week's Budget is when "the rubber really hits the road".

According to BBC political correspondent Gary O'Donoghue, this is a clear indication, if one was needed, that the coalition is planning to cut hard and raise taxes.

Mr Cameron acknowledges there are no easy ways to cut the deficit but says it has to happen for the good of the country.

He also insisted there was no agenda against public sector workers.

"There are three large items of spending that you can't ignore and those are public sector pay, public sector pensions and benefits," he said.

"We revere and want to stand up for people working in the public sector. They do an incredibly important job.

"There is no animus against people because they work in the public sector. It is just a question of how do we best deal with this budget deficit in a way that is fair.

"There is no way of dealing with an 11% budget deficit just by hitting either the rich or the welfare scrounger."

Mr Cameron also lashed out at some unions, asking "what planet are they on?" after some union leaders vowed to oppose any cuts.

He also paid tribute to the Liberal Democrats. "I didn't predict that we would come together and agree properly robust fiscal action but we have, and that's all for the good," he said.

Tax warning

Mr Miliband, a contender for the Labour leadership, said the emergency budget may be the beginning of the end of the Lib Dem-Conservative partnership.

He told BBC Two's Newsnight programme: "I thought at the beginning of this coalition that it probably would last.

"Given the way they're going about this, Liberal Democrat voters will be saying Liberal Democrats in all conscience should not be voting for this budget."

Meanwhile a free market think tank, the Adam Smith Institute, warns that raising Capital Gains Tax (CGT) could cost the government as much as £2.48bn in lost revenues.

The government is widely expected to raise CGT in Tuesday's Budget.

It argues that higher tax rates will discourage individuals from selling assets, denying the government the CGT they would gain from the sale.

Mr Cameron suggested in the Times that the increase would be limited to raising "some modest additional revenue".