Investement and retail banking will be split up by the Government after Business secretary Vince Cable promised to take action on those not doing their bit for recovery.

In his first speech since the Lib Dems joined forces with the Conservatives to form a coalition government last month, he outlined his policies and plans for the Department of Business Innovation and Skills, which he heads up.

He pledged to break up the banks in order to prevent ‘casino trading’ as he called it from weakening the banking system again. He said: “I am taking a tough line with parts of the banking system which have not served enterprise in this country as well as they could. Or operated in the long term interests of our economy. As part of the coalition I have priorities including the question of structural reform — separating retail and investment banking.”

He acknowledged that his tough line on banking reform would win him no friends in the City, saying: “I know that my insistence on pushing this agenda is being presented by some as a grudge against the City.”

He added: “So it is important to draw a distinction very clearly between financial services as an industry and those banks that are trading and making substantial profits with an implicit promise of public rescue if it all goes wrong.

“And in some cases of course it did go terribly wrong, inflicting huge costs on the British taxpayer – who are ultimately paying the costs of the banking collapse and the recession it caused.”

A levy on the banks was also promised in order to pay back the tax payer for the millions that were ploughed into propping up the banking system. He said the tax payer should not have to provide insurance but instead it should come from the banks.

And state owned banks such as RBS and Lloyds will be forced to lend to small businesses. Mr Cable said he would, “redouble our efforts to ensure that bank lending agreements from banks that have benefited from taxpayer subsidy are being honoured.”

The Business Secretary also backtracked on his previous view that the Government should not be tackling the deficit with spending cuts this year. He said: “Like the Governor of the Bank of England, and like the OECD, I have been persuaded that early action on the deficit is essential. Going forward, policy must be driven always by the same rational calculation of economic risk and benefit.”

The speech was given yesterday at  Cass Business School in London and is the first time Mr Cable has spoken publicly about his policies in his new role as Business Secretary, working alongside Conservative Chancellor George Osborne.

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