David Cameron warns of two more years of cuts

Prime Minister David Cameron rejected Liberal Democrat proposals for a "mansion tax" Credit: Stefan Rousseau/PA Wire

Prime Minister David Cameron has warned that there could be further spending cuts as the government struggles to find an extra £16 billion in savings in the final year of parliament, on top of the billions of cuts already planned to try and deal with the growing budget deficit.

On the first day of the Tory party conference Prime Minister David Cameron ruled out plans for a 'mansion tax' but insisted the rich would play their part in paying back the deficit, promising "further action" to ensure the rich "pay their fair share."

Cameron said the Government would have to find further "spending reductions". He told the Andrew Marr show:

ITV News's political correspondent Libby Wiener reports from the Conservative party conference in Birmingham.

A aide said the government was paving the way for the next phase of austerity rather than signalling bigger than planned measures, but economists say longer or deeper cuts look likely after a return to recession cast doubt over its deficit targets.

The next election in 2015 will be fought on the economy and how best to get the deficit, which peaked at 11 percent of the nation's annual economic output, under control.

Cameron's Conservative-led coalition planned to all but erase the deficit by 2015 but has been forced to project two more years of cuts.

Prime Minister David Cameron and his wife Samantha arrive in Birmingham Credit: Stefan Rousseau/PA Wire

Underlying borrowing between April and August was a fifth higher than last year, suggesting that either bigger cuts or a further extension of austerity could be on the cards when the government updates its economic forecasts on December 5.

Speaking to the BBC, Mr Cameron said the deficit was down:

Referring to this year, he added: "It is too early to say where they will end up."

Official figures in March predicted a fall to below 6 percent this year, a target which now looks uncertain.

Finance minister George Osborne told the Mail on Sunday: