No10 refuses to rule out banks takeover

THE Prime Minister dramatically upped the stakes in the battle to make banks boost lending today by refusing to rule out full-scale nationalisation.

Gordon Brown's official spokesman twice declined to quash the idea that the State could take over the banks.

Downing Street left the threat dangling as one of Mr Brown's allies warned the financial institutions that they must increase the flow of loans before the "lid is blown off".

But the banking chiefs denied that they are not lending and claimed that the Government was confusing a series of issues.

John McFall, chairman of the Commons Treasury select committee, raised the prospect of full-scale nationalisation if lending remained "gummed" up despite the £500billion bank rescue.

He told BBC Radio 4's Today programme: "I'm firing a warning shot for the Financial Services Authority, banks and others to get something done. I have spoken to lots of people over the past weeks. There is a real frustration building up. We better get something done before the lid is blown off."

Asked about the proposed nationalisation, the Prime Minister's official spokesman said: "In these circumstances, of course we have to look at all options. But we want to work constructively with the banks."

Given a second opportunity to comment, he added: "It would be foolish to rule out specific options."

But Angela Knight, chief executive of the British Bankers' Association, insisted that lending to small and medium-sized firms was the same in the three months to September as last year. "There is a mixture of issues. They have all coalesced into one which is a cry to say the banks are not lending and frankly they are," she said.

But ministers believe that even firms with "perfectly good track records" are being denied funding. Labour MP John McDonnell said: "We are witnessing a startling rise in home repossessions. The Government needs to be more forthright and move towards the full nationalisation of the banking sector to be run in the interests of the British people."