Cameron warns of public sector cuts

Prime Minister David Cameron has said it is"fair" that public sector workers should face a pay and pensions squeeze in next week's emergency Budget.

Along with the bill for welfare payments, they were the three major areas of spending "that you can't ignore" in trying to find the significant savings needed to tackle the record £155 billion deficit, he said.

Chancellor George Osborne will deliver what is expected to be one of the toughest budget statements for many years on Tuesday in a bid to show Britain can "live within its means".

The annual £180 billion public sector pay bill and pension schemes whose cost to the taxpayer is set to triple to £9.4 billion over the next five years, will be squeezed.

But Mr Cameron insisted in an interview with The Times that 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 told the newspaper.

"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."

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

The PM would not be drawn on which taxes will rise in the Budget but insisted that any hike in capital gains tax would bring only "some modest additional revenue".

Raising the CGT rate to something approaching that of income tax was a Liberal Democrat policy adopted by the coalition to the concern of many Tory backbenchers who fear it will hit the elderly and entrepreneurs.