On Friday, Ken Robins decided to tell the government what was happening in the real world. The entrepreneur, who runs a successful coach firm in Bournemouth, wrote to Lord Mandelson, the business secretary, to set out just how tough the banks are being despite ministers publicly encouraging them to lend.

Robins explained that his bank, HBOS, had tried to halve his firm’s overdraft facility without warning. Worse, under this new deal the cost of borrowing was doubling and the bank wanted to impose new charges on future funds.

“We turned over £4m in the year to November and profits are up by 50%,” said Robins, owner of Excelsior Coaches. “We are a success story; but our bank cut our overdraft facility from £300,000 to £160,000.

“They also refused us working capital for a new contract that would have meant we would have taken on 30 more employees. The British banks are taking their clients to the cleaners.”

By the time Robins, 61, managed to negotiate a better deal with HBOS, he had lost out on a contract with a blue-chip client worth £2m a year.

“It’s very frustrating,” said Robins, who is angry about the banks’ reluctance to lend despite being bailed out with public money. “The British banks have got this extra money but have not kept faith with their clients and risk destroying them.”

The government professes a similar view, in public at least. Having stumped up £37 billion of taxpayers’ cash to rescue the banks from their own folly, and offered guarantees worth a further £450 billion, it says it wants bankers to do more than just pay themselves bonuses.

Last week Mandelson declared: “It is completely unacceptable to the government and to business in this country for banks indefinitely to stop functioning as banks.”

Mervyn King, governor of the Bank of England, called the lack of lending the “single most pressing challenge to domestic economic policy”. And some sources warned that banks risked being fully nationalised if they failed to lend.

Unfair, cried the high-street banks. We are lending, they said; in fact, we are lending 10% more to small business than last year. And in private, one banking chief claimed last week, Mandelson accepts the banks have a case.

The government is caught in a dilemma. It has pumped money into the banks to save them, not for them to lend. On Friday the government became the controlling shareholder in Royal Bank of Scotland, owning 57.9%; but on Saturday Gordon Brown said he had no intention of fully nationalising the banks. In short he wants to tell them what to do, but not to run them.

Consumers fearing for their jobs, homeowners grappling with mortgage payments and businesses trying to survive the downturn can be forgiven for being confused. Meanwhile, savers may simply feel aggrieved: after propping up the banks, some are now earning as little as 0.1% on their accounts.

In the battle over Britain’s missing billions, who is in the right? Are the banks behaving badly, putting thousands of jobs and homes at risk, and taking savers for a ride? Or is it the government that should be doing more?

WHEN Alistair Darling, the chancellor, gave his prebudget report last week, he said that the government had taken action to recapitalise the banks and they would have accessed some £100 billion of guaranteed funding by the end of the year.

So far customers have seen few benefits. On the banks’ own figures, borrowing is getting more expensive even though the Bank of England has slashed its rates. While the base rate has fallen from 5.75% in November 2007 to 3% now, the cost of both household overdrafts and credit cards has risen, according to Bank figures.

Businesses are faring no better. Sally Preston is one of those who has seen how the banks have tightened lending terms.

In the summer her firm, Babylicious, which makes high-quality frozen food for infants and toddlers, had a standing offer of an overdraft, which she stopped because she didn’t use it. Now, when she does need one to help manage cashflow during the downturn, her bank, HSBC, is reluctant to provide funding.

Though HSBC has not taken a capital injection from taxpayers, it did sign up to the government’s rescue scheme, benefiting from state guarantees and injections of liquidity intended to free up credit markets. And if anyone ought to be able to get an overdraft from HSBC, it is Preston: in 2003 the bank judged her business so good that she won its competition for entrepreneurs called Start-Up Stars.

“They are not saying no, but they’re not being very quick about saying yes either,” said Preston. “It’s all taking time - and time is something you don’t often have as a small business.”

Like other banks, HSBC is also imposing tougher terms, demanding Preston put her house on the line as security.

Preston, who accepts that the banks are grappling with enormous problems of their own, believes HSBC will eventually provide an overdraft. Others are less magnanimous.

Iain Wicks, chair of the Federation of Small Businesses in Essex, said: “The banks have been given huge amounts of money on the understanding they would start lending to businesses, and they have just not done it. There have been cases of appalling treatment. It is absolutely outrageous.”

In Cambridge, Peter Martin, a chartered accountant with PMI Consulting, which provides financial advice to businesses, said it was “hogwash” that banks were supporting small business with extra capital. His experience is that banks are trying to increase interest rates on debts and ensure loans are secured against more assets than previously required.

PERSONAL customers are also being squeezed. Angela York, 53, an art teacher from Hope, in Flintshire, recently received a letter from Sainsbury’s Bank saying that her credit card limit had been cut by £700 with immediate effect. She had not gone over the limit; indeed, she had paid off the balance on the card. Yet the bank cut the amount she could spend.

“I had a limit of £2,400 and they reduced it to £1,700 for no reason whatsoever,” said York. “Not to give me any warning, to just do it - it’s astonishing.”

A survey this month reveals that some banks have also made punitive increases in personal overdraft rates. A year ago Clydesdale Bank charged 9.64% for an authorised overdraft; now it is 16.95%, according to the website Moneyfacts.

Other people are losing much more than credit. According to the charity Shelter, some ordinary borrowers are still losing their homes because of lenders being too quick to repossess in spite of the government’s calls for more leniency.

“Some sub-prime lenders are very aggressive,” said Adam Sampson, chief executive of Shelter. “People may have substantial equity in their homes, yet they face repossession for relatively small arrears.”

On Friday, the Financial Services Authority warned lenders they must repossess properties only as a last resort. Nevertheless, the numbers are set to rise. Repossessions are up 24% on a year ago, with 29,516 orders issued in the third quarter of 2008. The Council for Mortgage Lenders estimates that by the end of the year more than 170,000 borrowers will be three months in arrears.

At the same time a report last week predicted that bank lending for home loans will remain restricted over the next year - and that the banks may take in more in repayments that they give out in loans.

What is the government doing about the funding drought? For its latest initiative, Mandelson and Gareth Thomas, the consumer affairs minister, gathered the bosses of Britain’s biggest credit-card companies at the Department for Business in Westminster last Wednesday.

Consumer groups addressed the meeting, lambasting the firms for raising rates, trying to secure debts on homes and failing to help customers in trouble. The bankers defended themselves, claiming that their interest rates merely reflected the risks they faced.

At the end of hours of discussion, Mandelson and Thomas persuaded the lenders to allow troubled consumers some breathing space. Any credit-card borrower who asks a debt charity for help should now be given 30 days’ reprieve by their lender. Credit cards are, however, just one part of a much bigger problem; and one banker who attended the meeting believed the government was reluctant to be tough on the banks.

“Mandelson made it quite clear that the government was just trying to get a few runs on the board,” said the banker.

“There was no real interest in gouging money out of the banks, or making us pay. It was all about gaining political capital and being seen to be doing something.”

Politicians may get tougher than the bankers suspect. The chancellor has announced a new body, called the lending panel, which will “monitor lending to both business and households”. It will meet for the first time on Thursday.

However, even if ministers do coerce the banks into easing their lending terms, one significant problem remains. Despite the injection of taxpayers’ money, banks still lack a large amount of the funding to which they had access before the credit crunch.

A recent report by the Bank of England showed how “wholesale funding” - money from financial markets rather than individual savers - had become much more important to banks in recent years, while household savings had declined.

Banks faced a “funding gap” of more than £700 billion, according to the Bank, which they had to fill from sources other than traditional deposits. Since those sources largely dried up they have had less money to lend.

So to an extent ministers are guilty of making contradictory demands of the banks. First they wanted an end to the reckless lending that caused the unsustainable boom; now they want more lending to stop the bust even though wholesale money is in shorter supply.

The government argues it is merely seeking a balance. Thomas told The Sunday Times: “We want to make sure that people are being lent to who have sufficient funds, as that helps to keep the economy moving. Equally we expect the industry to do proper checks and proper due diligence. It’s about getting the balance right.”

Who decides where that balance lies? At the moment it is the banks, which claim they judge each case on its merits. Steve Cooper, managing director of local business banking at Barclays, said: “We’re lending more money to small businesses than we were a year ago, but we are operating in a different economic environment.

“If someone is running a restaurant that is suffering because not enough people are eating there, the problem may not be funding. We could double or treble the overdraft but that alone wouldn’t bring more people through the door. These things have to be judged on a case-by-case basis.”

Looming over all the banks’ decisions is the fear of yet more losses. House prices are still falling, unemployment is rising and the economy contracting. In such a climate the banks’ prime concern is to rebuild their capital and prevent it from being destroyed again by more losses from borrowers defaulting on loans. While that remains the case, they are unlikely to lend freely.

For that reason Preston, as she waits for news on whether she will get an overdraft, thinks only government action will solve the problem. “If the banks are not confident about making decisions, maybe the government should underwrite more of the risks,” she said.

The government seems to be preparing to do just that. On Friday the prime minister said: “We will be taking further action, if necessary, over the next few days.”

Preston hopes so, because she believes the time for talking is over. “They should get on with it,” she said. “We can’t dilly-dally. We don’t have six months. We have only a matter of a few weeks - and then many businesses will start to go under after Christmas.”

Additional reporting: Georgia Warren and Andrew Stone

Listening banks that now turn a deaf ear

The entrepreneur

Bill Dolan, who runs several businesses in Glasgow, is being squeezed by the demands of banks for greater security on loans and for higher interest rates.

Wanting to cut costs in the downturn he approached his bank to reschedule loans for his plant hire company. “They said things have changed and asked for personal guarantees and a higher interest rate,” he said. “They were asking for something like 9%, which I think is outrageous given that the rate was 5.5%. We’ve been repaying this loan on time for three years without any personal guarantee.”

Dolan also wants to start up a firm manufacturing fencing but is struggling to find any bank willing to take on the business. “I’ve been trying to open a bank account,” he said. “They have not got back to me. They are obviously not interested in new business.

“The banks have been big recipients of government aid but they are keeping it for their balance sheets and for their shareholders.”

The buy-to-let landlord

Ann Major-Stevenson is in the process of having six properties repossessed. A television producer and buy-to-let landlord, Major-Stevenson found herself in difficulty when interest rates increased and house prices stopped rising.

She believes she could have stabilised her position by selling one property and paying off some of her debt.

Before she was allowed to do so, she says, one of her lenders appointed a receiver to sell two of her flats, precipitating further problems and repossessions at her other properties.

“Nobody asked what was in my interests, or what my other debts were,” said Major-Stevenson. “There was no communication. It has been a complete nightmare.”

Now living in a cottage borrowed from a friend, she believes her only hope is to try to seek redress through the Financial Services Ombudsman.

The homeowner

Sharon Amato from Bristol was facing eviction earlier this month after her lender, HBOS, moved to repossess her house.

Amato had fallen behind with her mortgage payments after her marriage broke up. However, the house is worth far more than the £150,000 mortgage and she had a well-paid steady job, having been with one employer for 24 years.

Amato says she offered to keep paying about £700 a month, asking for the arrears to be added to the loan and its term extended. She even offered to have the payments deducted straight from her salary, as she is an employee of HBOS.

To the incredulity of the county court judge handling the case, the bank, which said Amato had failed to answer letters about her arrears, refused to stop repossession proceedings.

The bank finally relented after Amato’s case was taken up by BBC radio’s File on 4 programme.

The medium-sized business

Alan Osborn is chief executive of TWO Services, a successful cleaning company with a £4m turnover in Basildon, Essex.

He has been told his bank wants to increase the interest it charges on the money it loans to the company, even though the Bank of England base rate has gone down. It also wants more security for the loans.

“They are just greedy,” said Osborn. “They want their bread buttered on both sides. They have taken from the government, but they want to take from businesses as well.”

The sole trader

Small businesses complain that their survival is threatened by the demands of banks, but many are reluctant to be identified for fear of jeopardising future loans and banking facilities even more.

One trader, a self-employed computer engineer who lives near Brighton, told the Federation of Small Businesses how his £8,000 overdraft disappeared without warning.

He said: “I noticed, online, that my £8,000 overdraft facility had disappeared. When I contacted the bank they said this was because it was due for renewal. They advised that it was only my personal business manager that could set this up.

“When I asked to speak to him I was told he was busy for the next three days, and then he was on holiday for two weeks. I had no choice but to make an appointment to speak to him three weeks later.

“Eventually, when I did speak to him on this day, he told me that because my overdraft had expired a week or so before this had affected my credit rating on their system and he was unable to offer any overdraft.

“I am now at my wits’ end. I now have suppliers on my back. This credit crunch has done me. With the government’s injection [of funds] I thought I would be okay. Now it all seems like I’ve been hung out to dry.”