The Government has appointed Mervyn Davies, the chairman of Standard Chartered, as Trade and Investment Minister to help to turn around the struggling British banking sector.

Mr Davies, who played a key role in the multibillion-pound bank bailout last year, will become a peer and serve as a minister under Lord Mandelson, the Business Secretary.

Mr Davies will step down from Standard Chartered, the bank he joined in 1993, leaving behind his £650,000 a year pay-packet.

He is to receive no pay in his new role, and Lord Mandelson said today: "He's doing this as a public service."

The appointment emerged as Lord Mandelson announced more help for small businesses.

Under a new package of measures, the Government will offer a pot of £20 billion for banks to lend to small and medium-sized businesses, guaranteeing 50 per cent of all loans made to small companies, with lenders taking on the remaining risk.

Companies with an annual turnover of up to £500 million will qualify for the scheme.

The Government guarantee will apply to loans, but can also be used by companies to convert existing overdrafts into loans.

“We are offering specific solutions, not a blanket subsidy,” Lord Mandelson said.

A further £1.3 billion in loans will also be made available to smaller companies — those with a turnover of up to £25 million, with the Government underwriting 75 per cent of the loan.

Loans of up to £1 million will be available for up to ten years.

The Government is also putting forward an extra £50 million to invest in growing companies that need injections of cash.

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