Conservative calls for business credit scheme

Osborne told BBC radio there was a "catastrophic" lack of confidence in Britain's economic leadership, and doubts over its ability to live within its means as debt levels reach record levels.

His comments come a day after figures showed Britain's economy contracted in the third quarter of this year, quashing hopes the downturn was ending and instead marking the longest recession on record.

The Conservatives are well ahead in opinion polls and on course to win a national election that has to be held before next June.

"You need to address the root problems which are credit by creating loan guarantee schemes that work," he told BBC.

"Businesses cannot get access to basic banking services, so the credit crunch continues."

The government has pumped billions of pounds into the economy in an attempt to stimulate business activity including bailing out the banks, introducing quantitative easing, slashing interest rates and cutting VAT.

Chancellor Alistair Darling said he still expects growth to return by the turn of the year, but the economy remains stubbornly in recession, shrinking 0.4 percent between July and September.

It has now contracted for six successive quarters for the first time since records began in 1955, while other major economies, including France, Germany and Japan, have seen growth.

Asked why it was that Britain was still in recession while other countries were coming out, Osborne said: "It is because people do not at the moment have confidence in the economic leadership and the future of the British economy under the present government.