Page last updated at 10:07 GMT, Tuesday, 20 April 2010 11:07 UK

Clegg: Government must suspend Goldman Sachs contract

Nick Clegg sets out plans for a 'new approach' to the British economy

Goldman Sachs should be suspended as an adviser to the government until fraud allegations are investigated, Nick Clegg has said.

The Liberal Democrat leader referred to US allegations that the investment bank had defrauded investors.

He said it was a reminder of the "recklessness and greed" that had "disfigured" the banking industry.

Mr Clegg told a news conference in central London the allegations were "extraordinarily serious".

He said: "We believe that Goldman Sachs should now be suspended in its role as one of the advisers to the government until these allegations are properly looked into."

Treasury spokesman Vince Cable added: "The Goldman issue is not simply an issue for the US, it is emerging that the British taxpayer may have lost something in the order of £500m, perhaps more, as a result of the guarantee for the complex derivatives that were given by ABN Amro, which of course is now part of RBS, so there is a very strong British interest in this."

He added that these were "serious allegations which have yet to be proved".

'New ecology'

Mr Clegg made the comments as he announced his party's plan for a "fundamental change" to the UK banking system.

He said he wanted to split up the banks "so low-risk retail banking and high-risk investment banking are never mixed up with each other".

"So the casino banking of the investment world can never again hold your every day savings hostage, can never again hold a gun to the head of the British economy."

He added: "As long as the banks are unreformed they should pay a tax of 10% on their profits, and crucially, should be forced to lend the money according to the agreements they have entered into with the government."

The party wants a "different ecology" of banking, with regional stock exchanges, more mutual banks, credit unions and local enterprise funds, he said.

Hoarding by lenders was a major brake on business growth in Britain, Mr Clegg added.

City regulator, the Financial Services Authority has said it would launch a "formal enforcement investigation" into Goldman in relation to the allegations in the US.

Business Secretary Lord Mandelson said there had to be a "much more fundamental" reform of banking, rather than simply stopping using Goldman Sachs as a government adviser.

He told BBC Radio 4's Today programme: "We need a system of regulation, a system of levying banks which is international."

Prime Minister Gordon Brown has called for a special investigation into the bank, after reports that it is to rack up a bonus pot of £3.5 billion for the first quarter, and accused it of "moral bankruptcy".

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