David Cameron is on a collision course with his deputy Nick Clegg over banking reform, it emerged last night, with the Liberal Democrat leader accusing the banks of having "pointed a gun" at the economy.
While Mr Cameron is set to back Chancellor George Osborne's moves to delay a big shake-up of Britain's banks until after the general election in 2015, Mr Clegg offered public support for the campaign to implement the reforms immediately.
The Prime Minister, who has been lobbied intensively by bank bosses, has accepted their argument that the changes should be phased in over several years. Government sources confirmed that could mean they would not take effect until after the next election, as The Independent predicted yesterday. But Mr Cameron and Mr Osborne are braced for a backlash from Sir John Vickers, chairman of the Independent Commission on Banking, which will propose ring-fencing of the banks' retail and investment arms in its final report on 12 September.
Sir John will fight hard to prevent his blueprint from being shelved.
Vince Cable, the Business Secretary, also wants the commission's plan implemented quickly and has won strong backing for his stance from Mr Clegg, who vowed that the reforms would go ahead. "The principle must be structural reform to ensure the banking system never again points a gun to the head of the rest of the British economy," Mr Clegg said. "Our duty to future generations is to ensure that what happened to us, partly because of appalling behaviour in the banking system, never happens again."
The Prime Minister and the Chancellor acknowledge the banks' fears that an early shake-up could harm the fragile recovery. But there is nervousness in senior Conservative circles their stance could make them seem too close to the bankers.
Government insiders admit there will be a "haggle" between the two Coalition parties this autumn as ministers draw up their formal response to the Vickers report. One possible compromise is for legislation to be put on the statute book even though it would not take effect until after 2015. That might help to allay Liberal Democrat fears that a change of government could scupper the changes.
Yesterday Mr Cable insisted he was "working very well" with Tory ministers. But he declared that the current instability in financial markets made it "all the more necessary that we press ahead and make our banks safe and reform them".
Labour called on the Coalition to "get a grip". Chris Leslie, a Labour Treasury spokesman, said: "The choked-off recovery we've seen since George Osborne's spending review and VAT rise should not be an excuse for ducking the necessary reforms."
John Cridland, the CBI's director general, said yesterday there had been "a radical slowdown" in the economy since the commission's interim report and warned there was now real concern about the impact of any reform.
The banks also continued to argue for delay. Chris Lucas, the finance director of Barclays Bank, said the sector could cope with the reforms but that the timing of their implementation was crucial. "Whilst there has been considerable discussion about the breadth or narrowness of the ring fence, in our view the period over which implementation is required will be just as important," Mr Lucas said.