HSBC has pledged to make £1 billion of extra funding available to Britain’s small businesses ahead of the latest showdown between the big banks and government.

Britain’s largest bank has set up a $5 billion (£3.4 billion) global working capital fund, targeted initially at the UK and Hong Kong. The funding for the UK represents a 20% increase on last year.

HSBC’s decision follows a pledge by Royal Bank of Scotland to freeze overdraft rates for small businesses, and a series of initiatives from HBOS and Lloyds TSB.

All of Britain’s big banks insist they are increasing lending, in spite of criticisms from government. The debate will be reignited tomorrow in a meeting between the banks and Lord Mandelson, the business secretary.

HSBC chief executive Michael Geoghegan said: “This is a difficult time for business in many economies. Customers are rightly looking to see how banks can help.”

Paul Thurston, the bank’s UK managing director, said: “HSBC has already lent more to SMEs this year than last. This new £1 billion shows we’re open for business.”

The banks have been increasingly frustrated by the government’s public attacks over lending. Gordon Brown, the prime minister, pledged further harsh treatment for the banks on Friday after most UK banks failed to fully pass on the Bank rate cut.

Some bankers are calling for the government to shift their attacks to big corporates who delay paying suppliers.

“Trade finance is a much more important source of funding for small businesses than bank lending,” said one banker. “Decisions by companies like Tesco to delay payments is causing a lot of damage to the real economy.”

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