Detailing a program first sketched out in haste last week after an inconclusive election, the Conservative-Liberal Democrat alliance said an independent commission would look into the separation of retail and investment banking.
Needing to reassure markets, the agreement said that reducing a deficit running at more than 11 percent of GDP was its overriding concern.
"The deficit reduction program takes precedence over any of the other measures in this agreement, and the speed of implementation of any measures that have a cost to the public finances will depend on decisions to be made in the Comprehensive Spending Review," the document said.
The government plans an emergency budget on June 22, to be followed later this year by a detailed review of spending plans for the coming three years.
"We will significantly accelerate the reduction of the structural deficit over the course of a parliament, with the main burden of deficit reduction borne by reduced spending rather than increased taxes," the document said.
Finance minister George Osborne confirmed he would give details on Monday of plans for an initial 6 billion pounds in cuts to start paring a deficit that is forecast to reach 163 billion pounds ($234 billion) this year.
The accord also adopted Conservative plans to cut running costs at the defense ministry by 25 percent. It further proposed injecting private capital into state-owned Royal Mail, setting up a potential clash with unions.
UNUSUAL ALLIANCE
The alliance of the center-right Conservatives and smaller, center-left Liberal Democrats took office last week after an election in which no party won an outright majority. It is Britain's first coalition government since 1945.
Conservative Prime Minister David Cameron brushed aside suggestions that he and Liberal Democrat leader Nick Clegg, the deputy prime minister, were more comfortable with the alliance than many of their lawmakers.
"The more I see this coalition in action, the more I see its potential," Cameron said, adding he believed it could bring stable government for a full five-year term. Osborne also said urging banks to lend was vital to spur an economy just emerging from the deepest recession since World War Two.
"There is an urgent priority that is getting lending going to small- and medium-sized businesses. That is an absolute urgent priority," he said during a joint news conference with ministers from both parties to present the detailed program.
In a sign of the compromises from a coalition agreement, Osborne said details of reform of financial regulation were still being worked out, although he confirmed the Bank of England would take the lead role.
The Conservatives had previously vowed to abolish the Financial Services Authority (FSA) regulator, part of a tripartite system set up by the previous Labour government when it took power in 1997.
."..We are discussing exactly how that is delivered through the institutions and the impact that has on the future of the FSA and indeed a consumer protection agency," he said.
