Britain is starting to learn it must live within its means

High street banks insist they are lending billions of pounds to small businesses and consumers, doing their bit for the economy after being rescued by the taxpayer.

This is clearly not the case. Mortgage lending was at its lowest for nine years last month and lending to businesses fell sharply.

This is despite the hundreds of billions of pounds of taxpayers' money being pumped into the banking system to save it from collapse.

The lack of lending threatens to kill off any recovery this autumn and winter and outrage at stingy banks is the natural response. But it is not that simple.

Banks say they can't go back to pre-credit crunch days of easy money when 125 per cent mortgages and "liar loans" were all the rage.

They are right. It was this reckless lending that fuelled the financial crisis and its return would almost certainly lead to another one sooner or later. Banks have also been told by the Government that they must hold ever more cash in reserve to protect them against future losses.

This in itself limits the amount of money banks can lend to customers, so it is disingenuous of the Government to lay all the blame at their doors.

Northern Rock, Royal Bank of Scotland and Lloyds Banking Group may be in government hands but all British banks have benefited from the support the taxpayer has given to the financial system.

This makes them easy targets for an angry public and a desperate Government furious that even low-risk, credit-worthy customers are turned away or charged apparently extortionate rates.

Banks must do more to help such households and businesses if they are to regain any trust from the public.

But after the borrowing binge of the last decade in which personal, corporate and government debt levels spiralled out of control, the UK is learning that it must start living within its means once again.

As a result, bank lending, the motor that drives the economy, will remain muted for some time to come.