Cameron, in an interview with the BBC, also said he would use Britain's veto to scupper European Union budget talks if necessary, warning the 27-nation bloc it needed to learn to live within its means.

The prime minister said his Conservative-led coalition government was determined to stick to its plan to erase what was a record budget deficit when he came to power in 2010.

Asked if Liberal Democrat Deputy Prime Minister Nick Clegg was correct to say that whoever won the 2015 election would have to introduce another tranche of austerity because of the size of the problem, Cameron said:

"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 said.

"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."

The government delivers new economic and borrowing forecasts on December 5. Finance minister George Osborne said in an interview with the Mail on Sunday that Britain faced further cuts after a weaker than expected performance by the economy this year.

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."

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

Cameron, much to the delight of a powerful anti-EU wing of his Conservative Party, 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."

(Reporting by Guy Faulconbridge, Matt Falloon and Tim Castle)

• A Permanent Economic Emergency