Britain’s biggest banks will be offered £4 billion by Europe today to lend to small and medium-sized businesses, in a move that will restrict their ability to impose punitive interest rates.

The banks, including Royal Bank of Scotland, HBOS, Lloyds TSB, HSBC and Barclays, will receive the money only if they agree to tight parameters set by the European Investment Bank (EIB) on how it is handed out. There is widespread political anger that banks are forcing businesses to renegotiate loans on harsher terms when they come up for renewal, despite large cash injections from government.

The banks will in effect play the role of intermediary between the EIB, in which Britain has a 16.2 per cent stake, and business, meaning that high street lenders will have less discretion on how they use the £4 billion than is the case with the cash injected by the UK Government a fortnight ago.

Speaking at Prime Minister’s Questions yesterday, Gordon Brown said that restarting lending to businesses was the central issue to be dealt with in the next few days. At the same time the Prime Minister pledged to act against companies that force people out of their homes for trivial amounts of credit card debt. Store card debt is being purchased by debt-factoring companies, which then apply for the loan to be attached to property, thus obtaining possession. Mr Brown said: “I am aware of that problem. I believe that changes will be needed in practice.”

Government sources say that this is part of work going on across several departments to reduce the number of repossessions, which showed a quarterly rise of 71 per cent, according to figures released on Tuesday.

Alistair Darling and Lord Mandelson, the Business Secretary, will today meet the banks to put more pressure on them to continue lending and accept the European package. The loans are part of a four-year £24 billion European-wide initiative.

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