Earlier this week, Nick Clegg called for urgent action to make more funds available for businesses and mortgages, saying that, “We need to do something and do something fast. We have to look at ways to get money back into the real economy”.

Robert Peston has blogged today about some of the issues behind this problem:

The primary motive of the £400bn of additional taxpayer support provided last month by the Treasury was to prevent the collapse of the banking system (and really it wasn’t such a bad thing to prevent a meltdown of most of our banks).

Or to put it more bluntly, the transfer to our banks of so much of our cash wasn’t designed to kickstart lending by our banks – although it’s unsurprising that many of you think that’s what it was all about, because ministers created that impression…

But the only fact that you need to know about mortgages is that well over 50% of lending capacity in the mortgage market has been taken out by the problems at HBOS, the collapse of Bradford & Bingley and Northern Rock, and a freeze on new lending by small building societies.

The Treasury can shout all it wants to the recipients of capital from taxpayers that they must provide more loans to homeowners, but these recipients simply don’t have the resources to fill the gap…

As for what’s going on in lending to companies, the Bank of England’s summary of business conditions, as prepared by its network of agents, blew the whistle on that yesterday. It said:

“Contacts reported a tightening in their own credit conditions since September. The all-in cost of finance had increased as set-up and management fees were raised and loans were increasingly priced relative to Libor rather than Bank Rate. Some contacts expected future cutbacks in facilities”.

Or to put it another way, credit for business has become harder to obtain and more expensive.

You can read more about Nick Clegg’s proposals on the Liberal Democrat website.