* Cameron hails from unusually privileged background
* Critics say he is biased in favour of the rich
* He denies the charge, says he wants to spread privilege
* Drive to cut welfare benefits has fuelled image problem
By Andrew Osborn
LONDON, Jan 14 (Reuters) - A descendant of King William IV and an alumnus of Britain's Eton College, British Prime Minister David Cameron has struggled to counter the charge he favours the interests of the wealthy minority into which he was born.
An outspoken lawmaker in his own Conservative party has called him and his finance minister "two posh boys who don't know the price of milk", while opposition lawmakers and parts of the media have likened him to "Flashman", a fictional upper class literary anti-hero of the nineteenth century.
Cameron's determination to push through a real-terms cut in state handouts for some of the most vulnerable groups in British society in an effort to cut the country's large budget deficit risks compounding his image problem.
Credit ratings agencies have said Britain's triple A rating is in danger. Financial markets could swiftly turn against Britain if they sense the budget is veering off track, in the same way they turned on weaker members of the euro zone in recent years.
Battling to make inroads into a deficit that stands at 8.0 percent of gross domestic product, Cameron, a graduate of Oxford University and the son of a wealthy stockbroker, has taken aim at the amount of money the government pays out in welfare benefits each year.
His Conservative-led coalition government - with the Liberal Democrat party as the junior partner - is currently pushing through legislation that would cap the amount that welfare benefits rise by 1 percent between 2014 and 2016.
The welfare budget includes pensions and tax credits as well as unemployment, sickness, housing, local tax and child support benefits. Such benefits have traditionally risen in line with inflation.
Welfare is an appealing target for Cameron. The bill for Britain's welfare state - the product of a post-World War Two Labour government - stands at just over 200 billion pounds per year, swallowing up more than one third of the state's budget.
At a time when politicians of all stripes say the public finances are "broken" and the government is capping the pay of public sector workers as well as reducing spending in almost every area of public life, Cameron and his aides say that people who are out of work or who rely on state handouts for other reasons should also have to make a sacrifice.
But in a country acutely attuned to people's perceived class and background where people of aristocratic ancestry often try to hide their background so as not to alienate others, Cameron's decision to tackle the welfare bill has exposed him to accusations he is out of touch with the electorate.
His government's move to simultaneously cut the top rate of tax from 50 to 45 percent - a step the opposition Labour party calls "a tax cut for millionaires" - has provided further ammunition to his critics.
In a fractious debate on the proposed cuts to welfare last Wednesday, Ed Miliband, the leader of the Labour party and the son of a Marxist academic, accused Cameron of "trying to divide the country".
"The facts are these: he is cutting the top rate of income tax by an average of 107,000 pounds for everyone earning more than 1 million pounds in Britain at the same time as he is raising taxes on everyone else," said Miliband, whose party is 12 percent ahead of Cameron's Conservative party in the polls.
On Sunday, Miliband, 43, who could become the country's next prime minister after a May 2015 election, stepped up his attack on Cameron.
"We would not run this country in the interests of a few people at the top as this government is doing," he told the BBC. "It would be a much fairer society."
Cameron, 46, has said he has no choice but to make what he repeatedly calls "difficult decisions" because of the record deficit he inherited from Labour and accuses his opponents of having no credible deficit-reduction strategy.
He is under pressure from rating agencies who are eyeing Britain's top notch credit rating with a view to cutting it. Anaemic growth and disappointing tax revenues have reduced his room for manoeuvre still further.
He says he has already cut the deficit by 25 percent and created more than 1 million private sector jobs since coming to power in 2010.
Speaking to his own party at its annual conference in October last year, Cameron addressed the issue of his privileged background and the perceived disconnect he has with the lives of ordinary voters.
He admitted his had not been "a hard luck story", but said his intention was not to defend privilege but to spread it so that everyone in society might benefit from the kind of help he had enjoyed.
He accused the Labour party of trying to stoke class war.
"Line one, rule one of being a Conservative is that it's not where you've come from that counts, it's where you're going," he said. "We've been led by the daughter of a grocer, the son of a music hall performer, by a Jew when Jews were persecuted, by a woman when women were sidelined. We don't look at the label on the tin, we look at what's in it."
But as Britain steams ahead with deeper cuts to public spending as it attempts to resurrect its holed public finances, the background of the person overseeing that painful exercise is likely to continue to be in focus.
Critics have also accused the Conservatives of demonising the unemployed by resorting to what they say is insulting rhetoric, portraying the jobless as people who lie in bed in the mornings as others are on their way to work.
A contested episode last October in which one of Cameron's ministers was accused of calling police "plebs" - an insult laden with class snobbery - deepened the Conservatives' image problem, and George Osborne, the finance minister, found himself fighting accusations of snobbery the same month in an incident involving train fares.
A YouGov/The Sun poll from Jan. 8 showed Cameron's government is languishing in the polls and that its two constituent parties would soundly lose a general election if one were held today.
It put the Labour party in the lead with 44 percent, the Conservatives in second place with 32 percent, and had the Liberal Democrats trailing a long way behind with just 10 percent.