HIGHLIGHTS-David Cameron interview with Reuters

LONDON, March 2 Tue Mar 2, 2010 11:10am EST

LONDON, March 2 (Reuters) - Opposition leader David Cameron insisted on Tuesday that tackling Britain's record budget deficit was his top priority despite fears expressed by some, including the International Monetary Fund, about possible damage to economic recovery.

In an interview, Cameron also talked about regulation, his party's attitude to Europe, and the polls.

Below are highlights from the interview:

DEFICIT

"I think there's an issue of credibility here which is that we are borrowing at the moment almost twice as much as we did in 1976. We're borrowing this year a Greek style percentage of our GDP.

"I believe that credibility would be reinforced by some early action on the deficit and I think the government has made the wrong decision, I think theirs is a very politically driven decision not to announce any reductions in an election year.

"Now of course there are different economists who take different views and you have to decide.

"If you look actually at what's happening in currency and bond markets and elsewhere you can see there's nervousness about the government's disunity and dithering over this issue, so I think early action is correct, but that's a judgment you have to make: What is the greatest risk? and I think the greatest risk is inaction"

RECOVERY

"There's an argument to be had here but I think the argument that says that any action to make any reduction in government spending would somehow automatically tip the country back into recession I think is wrong.

"I think the problem the government's had is that they've been trying to drag Gordon Brown reluctantly, kicking and screaming, to a more sensible place. It was only a few months ago that he was saying the whole election was all about investment versus cuts, he doesn't say that any more ...but I still don't think he's reached a properly realistic position of taking some action in 2010.

DOUBLE DIP RECESSION

"I don't want that to happen and I want us to do everything we can to stop that from happening but I would say the biggest threat to it is that link of not acting on the deficit.

"Confidence is the magic ingredient the economy needs right now. Of course we believe a budget where you relight the fires of enterprise, where you cut rates of corporation tax, where you help small businesses I think that would help.

"I also happen to think a new government that can think for the long term would help."

HUNG PARLIAMENT

"I'm not a soothsayer, or an expert in polling or an expert in markets. But I think the point (business spokesman) Ken Clarke made this morning is the first time there's been a really adverse reaction (in markets) was actually in response to a poll that hinted there was a chance that Gordon Brown could stay as Prime Minister. "I don't want a hung parliament. I don't think a hung parliament would be good for Britain. I think we need a government that can take clear decisions and take a proper long term view and that is what I'm aiming for and what I believe we can achieve.

ON WORKING WITH OPPONENTS

"Even in this parliament we've taken a wholly constructive view. Find me an opposition party virtually in Europe or anywhere in the world that has actually set out for the government: 'Here are some things you could cut to help you get on top of the deficit'.

"We put forward these policies first as a recommendation to the government so if you want evidence of constructive activity, look at what we've done in opposition."

ON REASSURING MARKETS

"My reassurance to the markets is that I will do everything humanly possible in the next 70 days to try and achieve a majority Conservative government because I think that is the best outcome for Britain and I think that is the best outcome for our economy. "We have the right values of encouraging aspiration and cutting tax rates for business and making this the best place to invest and to grow a business in Europe."

TAXES

"We have no plans for a rise in VAT. We have always said very consistently that you cannot rule out increasing taxes and that's a line I've taken from the very first day I became leader of the Conservative party.

"...but the whole point about our programme is we want to try and achieve the reduction of this deficit by getting public spending under control and getting the economy going.

REGULATION

"We're quite supportive of them (President Obama's bank regulation plans) in that we think the problem of recent years was not so much the level of regulation but actually the type of regulation and the role of the regulator and we think that the tripartite system failed ... and we have very clear proposals to return regulation and banking regulation to the Bank of England.

"And in terms of Obama's plans we think that the idea of a bank levy which would be agreed internationally so that we would get over this moral hazard problem ... I think if it can be agreed internationally then that is a good idea.

"I also think the idea of saying that there are some activities at the very very risky end that retail banks shouldn't be taking part in such as proprietary trading on their own books and internal hedge funds, I think this is a sensible proposal and one again that, if elected, we would pursue with President Obama through the international meetings that are coming up and if we can get agreement from it."

TOO BIG TO FAIL?

"We've had very fruitful and productive discussions with Mervyn King about this issue, about the role of the Bank of England, about monetary policy, about the need to get to grips with the deficit.

"In terms of the priorities, in terms of how we better regulate the banks, priority number one is to have a clearer regulatory system, putting it under the control of the Bank of England. Priority two is to give the Bank of England that power to call time on debt levels. The next priority is to try to get international agreement for the things that I have talked about and that is the path that we choose to go down.

"But we've always been very careful, as these issues have come up, not ... to rule out structural changes "I don't go as far as Vince Cable (in calling for banks to be broken up) but I do think ... that as we put the banks back into the private sector there is a great opportunity to make sure that we have a more competitive banking system in Britain.

"Obviously we want to get very good value for money for the taxpayer, we want to get the taxpayers money back. Obviously we want to make sure that we've got strong and effective banks in our country but crucially I think if you talk to businesses large and small they are frustrated by the level of competition and I think we will have an opportunity in government to make sure we have a good and competitive banking system with choice for businesses so that they can get loans at effective rates.

WHY ARE THE CONSERVATIVES SLIPPING IN OPINION POLLS? "Well I read my papers this morning and they said here was a great bounceback to the Conservatives and I ate my bran flakes with renewed vigour and excitement

"I think the truth is this election was always going to be a tight contest. It is a big decision to ask your country to change its government, to go in a new direction.

"I think in Britain people have had a very difficult recession and you have seen the reputation of politics collapsed because of expenses, people are angry with their politicians and people will think carefully before they make their choice."

WHY SHOULD PEOPLE VOTE CONSERVATIVE?

"Because we need to take the country in a new direction, we need change, I think another five years of Gordon Brown would be a disaster.

"If we do go in a different direction, informed by the values of giving people more power and control of their lives, having a more responsible society encouraging people to do the right thing and above all with our economy, getting to grips with the deficit and unleashing a new wave of aspiration, business creation and employment, I think we can turn this country around.

"People want change. We have to convince them that the change they will get is real and at the same time reassure them that this is a Conservative party that has in itself changed, that it has moved along from the 1980s and 1990s and I think people can see that in the candidates we have selected and the team that I am leading.

"But I fully recognise we have a lot of work to do"

WILL CAMERON HAVE TO CHANGE DIRECTION TO WOO PARTY RIGHT

"I don't do lurches.

"I think I have demonstrated a good style of putting together a strong team, leading that team, trusting people to get on with the job that they do, keeping those that do them and those who don't perform, change them."

ON ACCUSATIONS CONSERVATIVES WOULD DISTANCE UK FROM EUROPE

"The accusation is absurd. I have a very good relationship with President Nicolas Sarkozy, with Angela Merkel.

"We do agree with enlargement we have always championed that. People should expect from a Conservative government that we would be engaged, we would be positive, we would be pushing an agenda in the interest of Britain but on the big issues -- energy, security, climate change, on getting the economy moving, -- they will I think be pleasantly surprised that we'd be engaged and positive."

ON THE US RELATIONSHIP

"I have met President Obama on two occasions. We got on very well, he is an credibly talented politician and leader.

"I do believe the special relationship exists and that it matters."

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(reporting by Sumeet Desia and Jodie Ginsberg; editing by Janet McBride)

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