Banks are throttling recovery by not lending to firms, says Vince Cable

The attack came as Mr Cable insisted that more needed to be done to reform the banks following Libor interest rate fixing scandal.

Pressure was also mounting on Barclays to not give its former chief executive, Bob Diamond, an expected £20 million after he resigned over the scandal, which saw his bank fined £290m.

In an interview yesterday, Mr Cable said the government needed to focus on ensuring a £100 billion credit boost announced in June reached companies that needed loans to fund their expansion.

He said: “Our leading banks are frankly throttling recovery by not making business lending available, particularly to small-scale companies.

“That is where the real problem is, we now have to focus single mindedly on that task, how to make sure that the additional money gets into British business.”

Mr Cable said that he had been visiting “super” companies which had “got big export potential, got orders, and they just cannot get a loan from the bank to finance their exports and  expansion”.

He added: “This is the issue we have to focus on.”

However, the Business Secretary defended the Bank of England’s attempts to boost the economy through quantative easing, which involves increasing funds to the banks in the hope that they are passed on to businesses.

Critics have argued that instead, the banks have largely hoarded the money and failed to use it to help out struggling companies. Mr Cable said: “Quantitative easing is necessary but not sufficient.”

He added: “There has been a breakdown in the mechanism, in the transmission, it just does not get through to companies.”

Mr Cable also led calls for Mr Diamond to not get a massive pay-out, but admitted that the government was largely powerless over the situation.

He said: “I think in view of what’s happened, I would sincerely hope that the board of Barclays takes a fairly strict view about this.”

But he added: “There isn’t anything the government can do about it, but I think in view of the shame that has been heaped on Barclays bank, I would be very, very surprised if the chairman and the board were to allow another outrage to occur.”

But Labour shadow chancellor Ed Balls insisted the large payout should be stopped.

Mr Balls said it would be “outrageous” if Mr Diamond, who resigned as chief executive with immediate effect on Tuesday, received a severance package worth £17m.

The bank’s board is understood to have discussions with the Association of British Insurers, the trade group which represents billion of pounds of pension funds’ investments, over plans to open negotiations with Mr Diamond over his exit pay.

Chairman Marcus Agius, who is to step down – but who is to remain in his post until Mr Diamond’s successor is found – will give evidence to MPs tomorrow but is likely to tell them nothing has been decided.