Lib Dems to defy Cameron on welfare cuts

Britain's Prime Minister David Cameron (L) and deputy Prime Minister Nick Clegg watch the show in the Olympic Stadium during the closing ceremony of the London 2012 Paralympic Games September 9, 2012.

LONDON (Reuters) - The Lib Dems would block attempts to raid the welfare budget to bolster the coalition government's fragile austerity plan in the run-up to the 2015 election, Deputy Prime Minister Nick Clegg said in a newspaper interview.

Clegg's comments threatened another rift in the often fractious coalition led by Conservative Prime Minister David Cameron.

Struggling to revive his party's dire standing in opinion polls and his own poor ratings, Clegg said savings should start with tax rises for the rich rather than welfare cuts for the poor to help fill a "black hole" in the public finances.

The leader of the centre-left junior partner in the coalition said he would oppose a proposal for a two-year freeze on all state benefit payments, a stance designed to appeal to his party's grassroots.

Britain is stuck in a recession that has undermined the government's target of erasing the structural budget deficit by 2017 and left ministers looking to make further cuts.

"We are not going to do an across-the-board, two-year freeze of all benefits during this parliament," Clegg said in an interview in Saturday's Independent newspaper before his party's annual conference this weekend.

"I have seen that mooted, it is not on the cards."

Government sources told Reuters on Tuesday that the idea of a welfare freeze and scrapping the link between benefit payment rises and inflation had been floated.

It would play well with many centre-right Conservative voters, but infuriate Lib Dems already angry about compromises made since the coalition government was formed in 2010.

Clegg said it was unrealistic to think the government can avoid further cuts, but he dismissed talk of culling another 10 billion pounds from the welfare budget.

"The idea that you ask welfare to take all of the strain is something I will not allow to happen," he said. "You cannot fill the remainder of the black hole from the wealthy alone, but that is where you start."

His opposition may put him on a collision course with Cameron and Chancellor George Osborne after gloomy public finances data on Friday highlighted the scale of their challenge.

Official statistics showed the budget deficit widened to the biggest on record for any August as the recession hit company tax receipts and pushed up benefit payments.

Clegg, who apologised this week for an unpopular party U-turn on university tuition fees, brushed aside speculation about his future as party leader and said he would stay in place to fight the next election in 2015.

"If I didn't feel I had the fuel in the tank to do it, I wouldn't," he said.

(Reporting by Peter Griffiths)