Vince Cable hints coalition banking row is brewing Highlights from business secretary Vince Cable's conversation with Observer columnist Will Hutton at the Guardian Open Weekend festival Link to this video Vince Cable has sent a clear signal that rows within the coalition over banking could soon come to a head. Discussing the state of the economy with the Observer's Will Hutton at the Guardian Open Weekend, the business secretary said that a moment was approaching where policy towards the financial sector would "have to go one way or the other." Cable said the choice was between "a permanent role for the state in banking" or instead moving to "sell off the state-owned banks and promoting competition" and trying to encourage loans to cash-strapped small businesses using market forces instead. And in remarks that could infuriate some Conservative colleagues and the Treasury, he added that "my instinct is towards the former." Ever since the state acquired first Northern Rock and then large stakes in HBOS and RBS, the official policy has been focused on getting a good sale-price for these assets. But in a private letter (pdf) to David Cameron and Nick Clegg last month, which was leaked to the BBC, Cable argued that the government needed to recognise that "RBS will not return to the market in its current shape," and that the bank's "time as a ward of the state [should be used] to carve out ... a British Business Bank with a clean balance sheet and a mandate to expand lending rapidly to sound businesses." Instead of downplaying these private discussions on a public platform, Cable went further by suggesting not a time-limited role for a nationalised bank but a "permanent" one. After spending Friday at the Federation of Small Businesses conference in Scarborough, the business secretary's thinking is influenced by the continuing difficulties that smaller companies are having in raising finance. A recent report he commissioned from Tim Breedon, the chief executive of the finance company Legal and General, warned that there could be a shortfall of £190bn in small and medium enterprise finance by the middle of this decade. Cable explained on Saturday: "I could do my usual bash the banks thing, but it's all very difficult because we are telling them to do two contradictory things - rebuild their balance sheets on the one hand, and increase their lending on the other." He sees a state-owned bank which could be directed to lend while being backed the state's balance sheet as the way to reconcile the two. Since the credit crunch, Whitehall has already got involved in providing finance far more actively than before, most recently through George Osborne's "credit easing" scheme. But Cable said Osborne's initiative would do "modest things at the margin." At the end of a week in which there have been rumours on Twitter that Nick Clegg may now be persuaded that it would be better for Cable to be outside the cabinet, the business secretary did not shrink from spelling out his views on issues that go well beyond his narrow departmental brief. Asked about a suggestion that the Bank of England's mandate to tackle inflation could be replaced by a broader target of national income, or more specifically "nominal GDP," Cable said: "I am attracted by it." He said he could not go further or he would set hares running about recasting macroeconomic policy in the press. Even so, Osborne may be displeased about this encroachment into a field which is a Treasury responsibility. Cable also revealed some of the frustration he feels at being in government. He said "arid" statisticians were thwarting ambitions for using the public balance sheet more aggressively to support industry. And he said that the decision to make the Office for National Statistics (ONS) independent, while taken out of an understandable wish to end political interference, had proved to be "a mistake" because the ONS now sat in a "God-like role" when it decided what did and did not score as public borrowing. He said it had "hemmed in" the government and prevented it from "doing all sorts of things" to boost industry. He made a wry dig at the Conservatives when, in reply to a question about whether James Murdoch was a "fit and proper" person to run a media company, he said that "unlike some of my colleagues I have never met him." Cable had responsibility to oversee News Corp's takeover of BSkyB but it was withdrawn in 2010, after he told undercover Telegraph reporters that he was going to war with Murdoch, and since that time he has been very careful about his comments in relation to media. But he did say that "cross-platform ownership has got too great," and signalled he would be saying much more in his scheduled appearance in front of the Leveson inquiry. In his wider remarks on the economy, Cable said that the British labour market was "hyperefficient" and that he took issue with unnamed rightwingers, who include several government figures, who believe the priority is making it "easier to sack people." The "deep structural problems in the British economy," he suggested, were instead to do with a "shortage of specialised skills."