Cameron to defend Budget plans in Obama talks

British Prime Minister David Cameron will today defend his decision to slash government spending as he meets US President Barack Obama for one-on-one talks on the fringe of the G8 summit in Canada.

The gathering of global leaders has been marked by a transatlantic spat over the economy, with Mr Obama urging continued fiscal stimulus to avoid the risk of renewed recession, while Europeans - led by Cameron - argue that the time has come for austerity measures to cut borrowing.

Mr Cameron last night said he expected the G8 to back his approach, and played down suggestions of a rift with Mr Obama, whom he is meeting for face-to-face bilateral talks for the first time since becoming British Prime Minister last month.

Despite Mr Obama's warning in an open letter last week that over-hasty withdrawal of state stimulus could result in "renewed economic hardships and recession", Mr Cameron insisted the President accepted that economic policies must be tailored to suit individual countries' particular circumstances.

While countries with a budget surplus, like China, need to stimulate domestic demand, nations with large deficits need to restore confidence by "living within their means", said the PM.

"The risk to us - and the Americans and others recognise this - is not taking action," said Mr Cameron.

"I think that the G8 will actually conclude that those countries with the worst problems need to accelerate their action, which is what we have done.

"Of course, looking across the world, there is still the underlying problem of the big surplus countries, like China, and the big deficit countries, like parts of Western Europe and America, and we have got to deal with those imbalances, but part of dealing with the imbalances is for the worst deficit countries to roll up their sleeves, get on with the job and make sure they are living within their means.

"That's what we have done in Britain. I think it will actually unlock confidence because people will see that there is a strong Government with a plan."

Also high on the agenda for the bilateral meeting with Mr Obama will be Afghanistan and the BP oil spill.

Last night, Mr Cameron promised to use "quiet diplomacy" to seek "clarity and finality" for BP over the ultimate size of its liabilities for environmental and economic damage in the Gulf of Mexico.

And he indicated that he envisages UK troops leaving Afghanistan before the next election - due in 2015 - telling Sky News: "I want that to happen, make no mistake about it. We can't be there for another five years, having been there for nine years already."

The annual G8 gathering concludes today after reaching new agreements on help for child and maternal health in the developing world, but risks disappointing aid charities who wanted firm commitments to deliver on pledges from the 2005 Gleneagles summit to double financial assistance to the poor world.

An accountability report released ahead of the summit found the group of rich nations was 18bn (€14.5bn) short of the 50 billion dollar target for 2010.

The G8 leaders - Mr Cameron, Mr Obama, Canadian Prime Minister Stephen Harper, German Chancellor Angela Merkel, French President Nicolas Sarkozy, Italian PM Silvio Berlusconi, Russian President Dmitri Medvedev and Japanese PM Naoto Kan - will travel to Toronto for a meeting of the wider G20 group, taking in other major economies like China, India and Brazil.

The G20, which is emerging as the world's premier economic forum, will focus on measures to cement the global recovery from recession.

It is likely to see a clear divide between the US - backed by Canada - which wants more spending to spur growth and put a lid on unemployment, and Europe, where opinion has shifted sharply towards fiscal consolidation in the wake of the Greek debt crisis.

Britain is not expecting agreement on the reform of global financial institutions like the IMF and World Bank which was a key goal of G20 gatherings in London and Pittsburgh at the height of the recession, but is now seen as an issue for next year's French presidency of the group.

And US and Canadian opposition to a global banking levy means Britain and other states including France and Germany will be left to go it alone with their own taxes for the time being.

Mr Cameron yesterday defended the £2.5bn (€3bn) levy on banks' liabilities unveiled in Tuesday's Budget, but acknowledged "this approach won't necessarily be for everyone".

He added: "We need to move faster on strengthening capital and liquidity in our banks so that they can fix their own problems without the taxpayer bearing the cost."