By Marcus Leach

Vince Cable has warned banks that the government will take further action against them if they fail to increase lending to small and medium sized businesses (SMEs).

The Business Secretary told the Business Committee that levels of lending to SMEs had become 'a serious problem', and that further action with tax would be taken against banks if this did not change.

The Project Merlin agreement, made with the UK's four leading banks, states that lending to SMEs should be £76 billion in 2011.

The bank bosses will also provide evidence to the Business Committee, hearing first from Stuart Gulliver of HSBC and Stephen Hester of Royal Bank of Scotland, and then from Bob Diamond of Barclays and Antonio Horta-Osorio of Lloyds.

"The chancellor and prime minister have made it clear that if we don't get results, they have said we should take further action with tax on banks," Mr Cable said.

Under the agreement of Project Merlin the amount the banks agreed to lend to SMEs equates to £19 billion a quarter, however, in the first three months of the year £16.8 billion was lent.

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