George Osborne, shadow chancellor, called on the government yesterday to consider acting as a bank – offering direct loans to business as a 'radical' last resort if banks continue to starve companies of credit.

Osborne also said ministers might have to step in to insure bank loans to the corporate sector, as he mapped out a Tory response to the credit crisis ahead of next week’s pre-Budget report.

The shadow chancellor has been accused by Labour of being too timid in his response to the accelerating downturn, but yesterday he insisted in an interview with the Financial Times that he supported 'big, radical, activist steps'.

However, he said his focus was on creating conditions for the Bank of England to cut interest rates and on putting in place mechanisms – such as state-backed credit insurance – to ensure cuts are passed on to consumers and business.

Financial Times