Business secretary Cable launches new attack on banks

Mr Cable made the announcement at the Lord Mayor of London’s trade and industry banquet at Mansion House, using the occasion to denounce the support offered by the banks to enterprising small and medium businesses as “second rate”.

“Britain’s recovery is being imperilled by the parlous state of the very institutions that cause the crisis in the first place,” he said. “I would go so far as to say that we have a financial service industry in London that plays in the Champions League, with overseas owners to match, and a British business finance system which struggles in the second division.”

However, he said the problem of the “disconnect” between the world of finance and the “real economy” was particularly hitting enterprising mid-sized companies which should be the engine of growth.

Valley of death

“It is especially acute for innovative firms who find themselves trapped in a ‘valley of death’ unable to raise funds to develop a proof of concept and cover the risks of early stage growth,” he said.

But Mr Cable used his speech to abandon his controversial proposal to break up the Royal Bank of Scotland and create a “British busines bank” specifically to increase the flow of credit to firms.

The scheme had been “floated” in a private letter to Prime Minister David Cameron and his deputy, Nick Clegg, he said, but he admitted it would delay the return of the part-nationalised bank to the private sector and could fall foul of EU rules.

“It was almost certainly be necessary to lengthen the period in public ownership,” he said of the former proposal, which had previously been leaked.

He added: “It may well mean state-controlled banks being able to lend at cheaper rates than new commercial banks, thereby affecting the development of more diverse finance. And even if they did these things, we would run into problems with EU sate aid clearance.”