Vince Cable hints at fresh moves to force banks to lend to businesses

Cable said moves to increase lending to small businesses have "not gone far enough", despite a high-profile agreement between the UK government and the big banks known as Project Merlin.

Under the terms of the deal, HSBC, Barclays, Royal Bank of Scotland, Lloyds Banking Group and Santander agreed to increase lending from 179 billion to 190bn in 2011, including 76bn of credit for smaller businesses.

The agreement is being overseen by the Bank of England, which is collating quarterly figures on bank lending for the purpose.

The first set of figures, published in May, showed the banks narrowly missed the their overall target.

Individual figures for each of the five banks are not published, making it impossible to know which are keeping to the bargain and who is falling behind, But there is speculation that some of the banks who are on track could chose to reveal their position voluntarily before the Bank of England next reports on 12 August.

Cable said yesterday that it was too early to write off the Project Merlin deal, sealed in February.

He said some of the banks involved were "clearly making a major effort", but it remained to be seen whether this culture change had spread to the others.

"What they have undertaken to do is to incentivise their own senior executives to focus on SME (small and medium-sized enterprise] lending.

"We are seeing a beginning of that, but clearly it has not gone far enough," he said.

"I'm not going to rush to say on the basis of a quarter and a bit that the whole experiment has not worked. I think we have got to give it a bit more time."

Cable said SMEs were the key to delivering growth as the UK economy makes its recovery from recession. The decline in availability of credit to smaller businesses was a "major and very damaging" consequence of banks' efforts to restore their balance sheets following the crash.

"The latest Bank of England figures suggest this problem has actually been getting worse since the recovery started," Cable added.

"Both the stock and flow of lending to SMEs has been contracting since late 2009."

He said lending to the smaller companies with turnover of less than 1m has been particularly affected.

Cable also insisted that his call for the full separation of high street banks from their more risky "casino" operations remains on the table, despite Chancellor George Osborne's public endorsement of a less radical alternative.

Cable used his speech to set out a series of tests which must be met before he will give his backing to proposals for a "ring-fence" to isolate retail and investment activities within the same institution.But he accepted that if ring-fencing is shown to be as effective as full separation, it will be endorsed by the government.