Vince Cable: lending to small businesses a 'very serious problem'

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Business Secretary Vince Cable said more needs to be done to boost lending to small business, while he warned that taxpayers could be propping up the Royal Bank of Scotland (LSE: RBS.L - news) for a long time to come.

Speaking to the BBC's Radio 4 Today programme, Mr Cable said lending to small business had been one of the "main casualties" of the banking crash and more still needed to be done.

"The government has a variety of ways of [boosting lending], including the Funding for Lending Scheme, which has had a small impact on mortgages but not on small business lending," he said.

"We have to have more cooperation and more diversity [to boost lending]."

The Government launched its Funding for Lending scheme in August, which aimed to unclog the flow of credit by giving lenders access to cheap finance.

Meanwhile, Mr Cable also rebuffed claims that the government had proposed distributing the government's shareholding in RBS to voters, and said the future of the bank was not settled.

Due to make the remarks at a London event, the business secretary expressed his exasperation at RBS, 82pc owned by the state but independent of ministerial control under the governance structure managing the state's investment.

"I would have preferred it was fully nationalised," he said.

"There is no immediate prospect of it being reprivatised.

"It can remain in public ownership for along period of time, it could be reprivatised or it could be mutualised.

"I haven’t foreclosed on anything."

In advance extracts of a speech released by his office, Mr Cable said the present government was saddled with the "worst of all worlds - responsibility without control" of a bank bailed out with £45bn of state money.

The public would benefit from the eventual recovery in the RBS share price "while professional managers run the bank with a long-term mandate", he said.

"We must work on the details so that there can be a proper, informed debate on how this legacy of the banking crisis is to be taken forward."

Controversies over executive bonus payments and the level of lending to loan-starved small businesses have dogged the government's dealings with the bank, which Cable said was "in limbo as a ... taxpayer-owned institution semi-detached from government".

The relationship is set to be strained further later on Wednesday when RBS is expected to be fined around £400m by British and US authorities for its part in a global scandal over the rigging of the Libor interest rate.

Cable, whose Liberal Democrats have ruled in coalition with the larger Conservatives since 2010, said early hopes for a re-privatisation of RBS now looked "a distant dream", unless for an unacceptable loss, given the depressed level of its shares.

"Recapitalisation may be the best solution but it is currently impractical; full nationalisation would cost the taxpayer billions and, except in a new financial emergency, this is unlikely to take precedence over other claims on spending," he said.

Cable, disappointed with the level of lending by RBS and Britain's other big banks to smaller firms (SMEs), said he had written to banks demanding more details of their loan books and would legislate if the lenders did not cooperate.

He said he wanted figures on "gross and net lending to SMEs, and overall lending, disaggregated to institution, branch and - preferably - constituency or postcode level".

In addition, Cable said he had asked the Bank of England to investigate why its Funding for Lending scheme, which reduces the cost of capital to banks in return for increasing lending, was not benefiting as many small companies as hoped.