Four years after taking over as leader of the Britain's Conservative Party, David Cameron, 43, may be months away from becoming the first Tory prime minister since 1997. His party's lead over Labour, which topped 20 points in mid-2008, has narrowed to a still-comfortable 12. An election must be held before June 3. If the Tories win, Cameron will inherit a mess. Expected to be the last G20 nation to emerge from recession, Britain has one of the highest budget deficits in the European Union as a percentage of GDP--just behind Greece and just ahead of Ireland. Fresh from a visit to Afghanistan, Cameron spoke to NEWSWEEK's Stryker McGuire. Excerpts:

McGUIRE: You are popular in Britain. The voters find you likable. But your party's lead has slipped and, furthermore, pollsters say voting intention is driven more by anti-Labour sentiment than pro-Conservative sentiment. That's a concern for you, isn't it?

CAMERON: Look, I've never met a politician who's happy with his poll ratings, and I never am. I always want us to be doing better. I think we've had a good year, if you look at real votes in real contests. In local elections we showed we're winning way outside [the] so-called heartland. Yes, people are very angry with the government. Yes, we probably need to do more to convince people that we've got every single thing in place to be a good government. Particularly in recession, I think people respect the fact that we have been open and straightforward about the deficit and the difficult decisions that will have to be made. But we have to inspire people as well. We've still got more work to do.

McGUIRE: Give me two or three decisions you would take in the early days of a Conservative government that will distinguish you from 13 years under Labour.

CAMERON: The war in Afghanistan has got to be fought, has got to be won. I would have a war cabinet from day one. We'd also double the bonus the troops are paid for serving in Afghanistan. The second thing is the deficit. We saw the pre-budget report this week [by Chancellor of the Exchequer Alistair Darling]. It was cynical, irresponsible-- borderline deceitful, frankly. So very rapidly, we [in a new government] will have an emergency deficit-reduction and growth budget. We cannot go on spending the way we are. I think the third area I'd pick out is what we believe is a more responsible country. We've had under Labour an enormous growth in bureaucracy, rules, regulations, interference in people's lives. We've covered our police, our teachers, our doctors, our nurses, our social workers in so much red tape and bureaucracy that they're incapable of fulfilling the vocation that drove them into their professions in the first place.

McGUIRE:If your party wins, you will inherit one of the heaviest debt burdens in the world. Economists are now, as you know, comparing Britain's fiscal condition with Greece's. How do you propose to reduce the deficit and still improve public services like schools and hospitals?

CAMERON: We've got to break this idea that the only way of improving things is to spend money on them. We've also got to adopt the idea that every business understands, which is that you can actually reduce spending in some areas while improving services at the same time. You can actually get more for less. It's only in British politics that people seem to think this is impossible. It's about making sure that you cut out the bureaucracy at the top of, say, the education system and get the money to follow the pupil into the school and straight to the head teacher. [But] we're not claiming that you can reduce the budget just by efficiencies. We've said there will be a public-sector pay freeze from 2011, excluding the million lowest-paid workers. We've said that the retirement age will rise. Normally oppositions don't announce these plans ahead of an election.

Are you worried that a new layer of regulations--imposed either by the current government or by the European Union--is going to stifle the dynamism that has characterized the City, London's financial center, for more than two decades?

We think the most important thing, rather just thinking of more regulation, is to get the structure right. So we're going to give to the Bank of England the power to regulate the major financial institutions in the country. Of course, you need some coordination at the European level, and I'm not against that, but we want to be careful that European countries that might not wish our financial services well aren't given free rein to do things that will hold them back.

McGUIRE:You've said you want a relationship with America that is "solid but not slavish," which was interpreted as a dig at Tony Blair. How specifically did the Blair-Bush relationship harm the United Kingdom?

CAMERON: The damage that was done was that Tony Blair wasn't positive enough in raising questions and issues [about the invasion of Iraq and postwar planning], which the candid friend should always do. That's not just a British perspective; I've heard that from senior American Republican politicians, who said sometimes you'd expect Blair to raise some questions and points and he didn't. That I think is the problem. I think that Margaret Thatcher, John Major, Winston Churchill all understood how to make the relationship work. Of course, we're the junior partner, but we have much to offer.

McGUIRE: In the past, Tony Blair and Gordon Brown have built partnerships with the U.S. president of the day around wars, including the so-called war on terror, and more recently rescuing the world from financial crisis. What do you see as the big ambition or goal that you and Obama might share?


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