Bank claim: Cable

The government has "pulled its punches" over its regulation of banks because it needs the help to establish its own savings scheme, the Liberal Democrats have claimed.

In an interview with ePolitix.com Vincent Cable, the Liberal Democrats' spokesman on Trade and Industry, claimed the government has stepped back from making sweeping changes to the high street banks in order to gain support for the Universal Bank - a scheme aimed at encouraging up to seven million people who are currently excluded from the financial system to open up accounts.

He also called for the Department of Trade and Industry to become "an offshoot of the Treasury" that would be specifically "concerned with long term supply side improvements of the British economy."

Cable called for the government to implement the recommendations of the Cruickshank report which called for the creation of Paycom - a regulator for the banking sector.

When asked why he felt the government had failed to implement the Cruickshank report, Cable said he supported the cynical view "that the government has been soft peddling on this whole issue because it wants favours from the banks in launching the Universal Bank."

Cable continued: "The cynical view is that because the banks are helping the government on that, the government is not squeezing them too hard on the regulator, and more generally the government is relying on the banks quite heavily to do things in terms of financial exclusion. I think the government has taken the view it would rather have the banks buying into being socially aware, rather than antagonising them with rather tough regulation."

Cable called for "concrete proposals coming forward to establish Paycom" within the next year". He argues that this will be "a real test that the government is serious".

The Lib Dems trade and industry spokesman said: "I'm not anti-big business. I used to work in big business - I worked in Shell and proud that I did so. I'm not anti-bank either, it's just that they have in recent years behaved in a rather anti-social way. The whole way in which the bank closure process was handled, particularly by banks like Barclays, showed a complete lack of sensitivity to customers in many cases. And they've got a bad reputation and they deserve it."

Commenting on the Department for Trade and Industry, Cable said: "it isn't entirely clear to me what the DTI does that is irreplaceable." He continued: "What would I replace the DTI with? One option would be to recognise the reality that the DTI is in many respects an offshoot of the Treasury."

Commenting on his view of the Treasury, Cable said: "one way of dealing with this would be to split the Treasury in two: to have a bit of a Treasury which is concerned with public spending management, that's really its main job. And then another bit of the Treasury which you could probably say was like the old departments of Economic Affairs in the 60s, concerned with long term supply side improvements of the British economy, and giving the right kind of signals, whether it's in respect of training or infrastructure, long term growth issues."

Cable said: "Each department would be headed by an independent minister. If the DTI had that function and was very effectively dealing with the long-term economic agenda, then I think it would have a real purpose. But I think at the moment it's just a pot pouri of odd things like export promotion, employment regulation, without any sense of coherence."