British PM tells Pakistan elite: 'Many of your richest people are getting away without paying much tax at all – and that's not fair'

David Cameron has told the Pakistan elite that they have to start paying more tax and cut out government waste and weakness if the British public are to back his plans to pour £650m in UK aid into Pakistani schools.

Pakistan is now to become the single largest recipient of UK aid, but Cameron issued his warning in a wide-ranging speech in Islamabad, setting out his plans for a fresh start with the Pakistan government after a turbulent year in which he criticised them for "facing both ways" on terrorism.

The prime minister is keen to put the relationship on a more even footing and move away from the previous stance encapsulated in the phrase "Pakistan must do more".

He said the British people would need convincing that every penny of the aid designed to help recruit 90,000 extra teachers and put 4 million children into education was going to the right places.

He added: "My job is made more difficult when people in Britain look at Pakistan, a country that receives millions of pounds of our aid money, and see weaknesses in terms of government capacity and waste."

He pointed out that Pakistan "currently spends only 1.5% of its GDP on education and, what's more, you have one of the lowest tax to GDP ratios in the world".

He said the Pakistan was simply "not raising the resources necessary to pay for things that a modern state and people require".

The Pakistani fiscal position was a serious one because "too few people pay tax. Too many of your richest people are getting away without paying much tax at all – and that's not fair", he said.

He said this tax avoidance was neither fair "on ordinary Pakistanis, who suffer at the sharpest end of this weak governance, or on British taxpayers, who are contributing to Pakistan's future".

Cameron is acutely aware that he is taking a risk in increasing aid to a country that is seen as both corrupt and the source of the biggest terrorist threat to the UK. Pakistan is also buying six submarines from China.

But he claimed the 17 million Pakistanis of school age not in education represented an emergency, adding that it cost the country more per year than a flood such as the one that hit last year. He also said such an education gap represented a breeding ground for extremism.

He also defended the war in Libya, saying it was not an attack on Islam and pointing out that, as in Afghanistan, Britain was there as part of a coalition and under a UN mandate.

Although he praised Pakistan for having fought hard against terrorism, he urged a wider crackdown in North Waziristan, saying: "It's right that neither the Pakistan army nor Nato forces must ever tolerate sanctuaries for people plotting violence."

His remarks masked Pakistan's anger over the use of US drones to bomb terrorist cells in North Waziristan, on the border with Afghanistan, and the lack of action by the army to send troops in.

Britain's imperial past

Cameron later sparked controversy about Britain's imperial past by claiming it was responsible for many of the world's problems.

He made his remark as a semi-jocular aside at the end of a question and answer session at a university in Islamabad.

Asked what Britain might be able to do settle the war in Kashmir, he replied: "I don't want to try to insert Britain in some leading role where, as with so many of the world's problems, we are responsible for the issue in the first place."

The left has normally been associated with the cringe about Britain's past, and Cameron wrote two years ago that the last Conservative government "gave the country a new confidence that we weren't the sick man of Europe".

Cameron has been one of many British prime ministers that has felt forced to apologise for historic misdemeanours including Bloody Sunday and, as Conservative opposition leader, for Britain's role in apartheid in South Africa.

Tony Blair, worried by the prospect of compensation claims, apologised for the potato famine and expressed his deep sorrow over slavery.