Tax threat over lack of lending to smaller firms

Mr Cable issued the stark warning to banks as he told MPs yesterday that the level of lending to small and medium-sized businesses was a "serious problem."

He was asked by members of a Commons committee to address fears that the UK's top five banks are failing to do enough to meet lending targets as set out under the Project Merlin agreement, under which the UK's biggest institutions are committed to lending 76 billion in 2011 to small and medium-sized companies.

A Scottish business leader told The Scotsman the UK government had to "do something" to ensure banks supported with taxpayers cash improved lending to firms. Mr Cable, speaking at the business, innovation and skills committee, said the coalition was "not seeing enough evidence" that bankers' bonuses were tied to lending pledges. He said: "We believe there is an issue with the supply and cost of finance and it is inhibiting recovery.

"The Chancellor and Prime Minister have made it clear that if we don't get results … we should take further action with tax on banks."

Colin Borland, of the Federation of Small Businesses in Scotland, said: "The government has to do something, especially as banks have benefited from taxpayers money."