UK's Lib Dems will not fall into Labour's arms

Liberal Democrat leader Nick Clegg answers questions at an election campaign news conference at the party headquarters in central London April 20, 2010.

LONDON (Reuters) - Britain's Liberal Democrats have "fundamental disagreements" with the ruling Labour Party and would not rush into any post-election alliance, the centrist party's economy spokesman Vince Cable said on Tuesday.

The Lib Dems are enjoying a dramatic surge in popularity ahead of a national election on May 6 that polls suggest could result in neither Labour nor the main opposition Conservatives holding an overall majority in parliament.

If that happens, the Lib Dems will hold the balance of power. So far, they are resisting intense pressure to say which party they would prefer to join in a coalition.

"We have absolutely fundamental disagreements with the Labour Party," Cable told BBC radio, dismissing suggestions that the center-left party was a more natural bedfellow for the Lib Dems.

He criticized Labour's "over-centralized" way of running public service, its "contemptuous" stance on civil liberties, its decision to take Britain into war in Iraq and Prime Minister Gordon Brown's record on the economy.

"We're not at this stage choosing between political parties. The Liberal Democrats are doing extremely well in the public opinion poll ... We will come out of this election very, very strongly," Cable said.

The campaign has been transformed since Lib Dem leader Nick Clegg outshone Brown and Conservative leader David Cameron in Britain's first live TV debate between the main party leaders.

"PERVERSE OUTCOME"

Polls show the Lib Dems overtaking Labour, in power for 13 years, and only a few points behind the Conservatives, who were the runaway favorites to win the election for the best part of two years but have seen their lead narrow in recent months.

Under Britain's voting system, the Lib Dem bounce is likely to hit the Conservatives harder, possibly leaving Labour third in terms of the popular vote, but still with the biggest share of seats in parliament. Brown would then have a chance of staying in power.

Cable said this would leave the whole voting system "completely and utterly discredited."

"There would have to then be fundamental reform of the political system. That would be the conclusion one would have to draw if that very perverse outcome happened."

Electoral reform is a longstanding demand of the Lib Dems, who until Clegg's breakthrough at the TV debate were dismissed as an irrelevant third force in national politics because the voting system meant they had little chance of governing.

Seeking to build on their post-debate momentum, the Lib Dems have turned their fire on the banking industry, which is unpopular in the wake of the 2008 financial crisis.

Clegg told a news conference on Tuesday that the U.S. investment bank Goldman Sachs should be shut out of government contracts until a fraud case against it was settled.

"We believe that Goldman Sachs should now be suspended in its role as one of the advisers to the government until these allegations are properly looked into," he said.

The Lib Dems have called for an additional 10 percent tax on bank profits, and for larger banks to be broken up to prevent a recurrence of the global banking crisis.