Clegg sides with Cable in battle over banking reform

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 due 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 some years. Government sources confirmed that this could mean they would not take effect until after the next election.

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 being shelved.

Vince Cable, the Business Secretary, also wants the Vickers 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 that 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.