Cameron says must rebalance the economy

Prime Minister David Cameron gestures during the launch of the Government Programme Coalition Agreement document in London, May 20, 2010.

LONDON (Reuters) - Prime Minister David Cameron said on Friday that Britain must rebalance an economy that has become over-indebted, unstable and too dependent on the public sector.

In excerpts released in advance of a speech he was due to give later on Friday in northern England, Cameron said the economy had been heading in the wrong direction for years, was over-reliant on welfare and increasingly hostile to enterprise.

It was billed as his first major speech since he became prime minister this month, ending 13 years of Labour Party rule.

Cameron, whose Conservatives formed a coalition with the smaller Liberal Democrats after a May 6 election failed to produce an outright winner, has set reducing Britain's large budget deficit as his top priority.

"As a country we have become indebted on an unprecedented scale. Our huge public debt is the clearest manifestation of our economic mistakes -- the glaring warning sign overhead telling us we have taken the wrong route," he said.

"We have been sleepwalking our way to an economy that is unsustainable, unstable, unfair and, frankly, uninspiring."

The economy had become "far too dependent on the public sector, with over half of all jobs created in the last 10 years associated in some way with public spending," he said.

Referring to London's financial services industry which drove British growth for years before being jolted by the financial crisis, Cameron said the economy had become increasingly unbalanced, "with our fortunes hitched to a few industries in one corner of the country, while we let other sectors like manufacturing slide."

Cameron said he believed Britain could rebalance economic power across different regions and industries, inject new life into the private sector and move to an economy built on savings and investment rather than debt and borrowing.

"We have set out a series of clear, transparent benchmarks for our economy, from ensuring macroeconomic stability to creating more balanced growth, getting Britain working and ensuring our whole country shares in rising prosperity," he said.

Cameron's coalition outlined this week 6.2 billion pounds of spending cuts this year. Further action to tackle a deficit running at 11 percent of GDP -- just a few percentage points below that of Greece -- is expected in an emergency budget on June 22.

However, senior MPs from Cameron's Conservative Party are unhappy at plans to raise capital gains tax to bring it close to income tax rates, a policy promoted by the Lib Dems.

Cameron inherited an economy just emerging from deep recession. The Office for National Statistics said this week the economy grew by 0.3 percent in the first quarter, up from an initial estimate of 0.2 percent.

(Reporting by Adrian Croft; Editing by Noah Barkin)