UPDATE 2-UK govt targets deficit, bank pay ahead of vote

* Government aims to halve budget deficit over 4 years

* Labour sets out plans for final months before election

* Opposition Conservatives say programme lacks substance

LONDON, Nov 18 - Britain's Labour government laid out plans on Wednesday to halve the burgeoning budget deficit and curb bankers' pay in the hope of reviving its popularity before a national election next year.

The opposition centre-right Conservatives are on course to win an election due by June, ending Labour's grip on power dating back to 1997. An enduring recession, an expenses scandal and anger over the war in Afghanistan have eroded support for Prime Minister Gordon Brown's government.

Wooing wavering voters, Labour promised to tackle failing schools, improve care for the old and ill and make the streets safer in a broad programme announced by Queen Elizabeth at the elaborate, annual state opening of parliament.

"As the economic recovery is established, my government will reduce the budget deficit and ensure that national debt is on a sustainable path," the Queen told the upper House of Lords.

Many of the proposed measures had already been flagged, raising questions about whether any of them would change the political arithmetic that places the Conservatives ahead by at least 10 points in opinion polls.

"These things are a kind of shop window, but to be honest I don't think many people are in the market to buy Labour anyway," said Tom Bale, senior lecturer in politics at Sussex University.

The government will enshrine in law its announced plans to cut the deficit in half over four years, but markets will have to wait until the prebudget report on Dec. 9 for more details.

The budget deficit is set to exceed 12 percent of gross domestic product this year, raising concerns on markets about the future management of public finances.

Where to target tax rises and spending cuts to reduce the deficit will be a central theme in the election campaign. Brown says Conservative plans to cut the debt more quickly would endanger Britain's recovery from the longest recession on record.

"POLITICAL EXERCISE"

Another law will allow a more powerful Financial Services Authority watchdog to tear up bankers' contracts if they are deemed excessive and will require financial firms to set out living wills to wind themselves down in a future crisis.

The Conservatives say they will abolish the FSA and give greater oversight powers to the Bank of England, following heavy criticism of the handling of the credit crisis when the government spent billions of pounds rescuing ailing banks.

"We are going to press ahead with our reforms. These won't be on the statute books for very long," an aide to Conservative economic policy chief George Osborne told Reuters.

The recession, a scandal over the misuse of public money to fund politicians' expenses and disquiet over the Afghan war have made a Labour defeat next year seem all but inevitable.

An ICM poll for the Guardian newspaper this week showed Labour's support had increased by 2 points to 29 percent, but that was still some 13 points behind the Conservatives.

Labour officials are hopeful their programme will reassure voters that the party still has the energy and ideas to govern after 12 years in power. They also hope it will expose holes in Conservative policy intentions.

Conservative leader David Cameron called the government programme a "political exercise" designed to try to win votes.

"They are not passing laws for the good of the country, they are passing laws to try and save the Labour Party," he said.

"This isn't today the end of this government, but let us hope it is the beginning of the end."

Business Secretary Peter Mandelson said the economy had taken a "heck of a beating" this year and that Labour were the underdogs heading towards the election.