Today our economy is facing a reckoning. Virtually overnight the UK’s business climate has gone from overheating to permafrost. Our financial institutions, once the conduits of cheap and easy cash, are now bolstering their own balance sheets and refusing to lend. Smaller enterprises are finding vital lines of credit frozen, overdrafts withdrawn and sudden rises in additional charges. Over the last month the Bank of England has said that the supply of money in the economy is at the lowest level for 30 years, while the CBI reports that more than 40 per cent of businesses are struggling with reduced or withdrawn credit flow.

Put simply, the recapitalisation scheme is failing in its main objective. The Conservatives supported the government’s strategy, because saving the banks was designed to save the real economy. Supporting lending was at the centre of the plan. The reluctance of banks to continue lending is, as Mervyn King, the Bank governor, pointed out, a powerful indication that this process has not been completed. There needs to be a new phase.