Labour MP Gordon Banks is now urging Business Secretary Vince Cable to step-up his campaign to get banks lending again.

Banks said: “At last the Secretary of State is recognising the failings of the banks in respect of lending and nowhere is it being felt more acutely than in the construction industry.

“What the banks and indeed the Government fail to grasp is that a strong construction and indeed housing sector is necessary for economic growth in the UK.

“The Government acknowledges that Project Merlin has fallen at its first hurdle but sadly it has been duped by the banks and is now in a position where it can do very little if they won’t budge.”

The Federation of Master Builders is also demanding an end to prejudice by bankers.

Brian Berry, Director of External Affairs at the FMB, said: “The banks have decided that the construction industry is high risk and good firms with exemplary credit histories are having facilities withdrawn and prices raised as a result.

“More than a third of FMB members have seen access to credit restricted and nearly half have had the cost of it increased.

“Banks have also restricted the availability of credit to construction clients, with nearly two thirds of our members saying that access to credit is also hampering the commissioning of work by clients.”