A treasury source told City A.M. that the creation of a wholly publicly owned bank that channels cheap funds into small business (SME) is “not going to happen”.
It is also understood that Cable has made no serious moves to examine the policy despite writing a letter to his Tory coalition rivals pitching it.
And the business secretary told City leaders last night that it is in fact unlikely to be pursued because it would delay re-privatising RBS and Lloyds and would not get past EU law.
He also said it could hinder the development of a functional small business credit market, which is being examined by Tim Breedon, formerly of Legal & General, in a special government taskforce.
Cable said that instead of a state bank: “Our focus at the moment is on credit easing where the government uses its own access to currently cheap bond finance to support cheaper and hopefully more plentiful bank credit.”
He suggested that small businesses currently occupy a “death valley” in finance terms.
He told leading City figures that SMEs’ inability to get funding might not show up in surveys – which do not reveal high demand – if they don’t even apply for loans because they are “perhaps scarred by recent experience, or simply scared of what might go wrong”. But he hinted at sympathy for lenders’ arguments that regulations are choking off SME credit, saying that adjusting rules would be “sensible” but difficult to achieve.
Cable, who was an economist for Shell, also compared the finance industry to oil companies that extract resources from countries with little regard for what happens “outside the perimeter fence”.