Mr Clegg says nationalised banks like Northern Rock must do more

The government should consider lending directly to businesses and mortgages as banks fail to live up to promises to lend more, Nick Clegg has suggested.

The Lib Dem leader says the government has been "supine" and "weak" in not forcing banks to act, despite giving them billions of taxpayers' pounds.

Mr Clegg said these were "not normal times" and solvent businesses were being put at risk by lack of funding.

There was "growing public anger" and urgent action was needed, he added.

Mr Clegg says the government should lend directly to companies through the Post Office, local authorities or even by creating an entirely new bank.

The government has made its multi-billion pound bailout of three of the UK's largest banks conditional of them restoring the level of funds available to small businesses to 2007 levels.

But the Lib Dems say that despite this, lending rates are still low.

'Bad bank'

Mr Clegg told BBC Radio 4's Today: "There is growing anger that the banks aren't lending money. The government should put pressure on the banks and encourage them to lend. If they're not prepared to get tough with the banks we need a plan B.

"You could lend directly into the economy - it is a huge step, but if the government isn't prepared to lift a finger we need to do something and do something fast. We have to look at ways to get money back into the real economy."

Mr Clegg says a new bank could be set up to channel money to firms, but he admitted that would take some time.

Instead the government could look at "bashing" the effectively state-run Northern Rock and Bradford & Bingley Banks together, clearing high risk loans from their balance sheets and getting them to lend more.

He also said that some of the larger councils should be able to lend directly to the mortgage market.

There was also the possibility of setting up a special "bad bank" to take on the "toxic debts" of nationalised banks such as Northern Rock - which could eventually be sold on by the government when market conditions improve.

"What we are saying is that there are a number of other ways that we need to explore of getting money back into the economy if the banks are refusing to do so," he told BBC Radio 4's Today programme.

"This is a complete departure from the kind of banking practices you would want to see in normal times, but these are not normal times."

The Conservatives have also come up with strategies to help companies, including calling for a 1p cut in national insurance.

Baroness Scott will take over as party president from January

The Liberal Democrats have elected Baroness Ros Scott as the new party president, replacing Simon Hughes.

Baroness Scott secured 20,736 votes, beating former frontbencher Lembit Opik who got 6,247 votes and Chandila Fernando with 1,799 votes.

The baroness will take up the post on 1 January next year and said she intended to ensure the party remained "a genuine grass roots movement".

Just under half (47.8%) of all party members voted in the postal ballot.

'Powerful' team

Baroness Scott, a former audit commissioner and councillor in Suffolk, is vice-chairman of the Local Government Association. She recently served as the party's spokesman on local government in the House of Lords.

Party Leader Nick Clegg congratulated her on the election results.

As we approach the next General Election our party needs to rise to the challenge of demonstrating that a vote for either the Labour or Conservative parties simply means more of the same Baroness Scott Profile of Lib Dem president Disappointment for Opik

"I know that Ros will do a fantastic job of representing the membership and upholding the wonderful tradition of internal party democracy that sets us so apart from other political parties," he said.

"Together with [party chief executive] Chris Rennard, we will have a powerful team working closely together to take us into the next General Election."

He went on to thank Simon Hughes for the huge contribution he had made as party president over the past four years.

"He tirelessly led so many campaigns around the country as president, engaging directly with people and communities with his trademark warmth and energy."

'Strengthened institutions'

Baroness Scott said she was proud to take up the new role.

"Our party is a genuine grass roots movement, and the job of the president is to ensure that we stay that way - that our members and activists remain at the heart of everything we do.

"Many of the problems this country faces today are a result of successive Tory and Labour Governments failing to face up to the need for strengthening international institutions, failing to regulate the financial services sector and over centralising public services.

"Only the Liberal Democrats have offered an alternative to this old tired thinking and as we approach the next General Election our party needs to rise to the challenge of demonstrating that a vote for either the Labour or Conservative parties simply means more of the same."

The results are likely to come as a blow to her opponent, Lembit Opik, who stood down from a frontbench job in September to concentrate on his campaign for presidency.

The former housing spokesman is one of the best known Liberal Democrats for relationships with weather presenter Sian Lloyd and Cheeky Girls singer Gabriela Irimia.

Mr Clegg said people with mental illnesses would be hit hard by a recession

Lib Dem leader Nick Clegg has warned of an "epidemic of mental distress" if Britain is plunged into a recession.

It could "dramatically increase" the numbers of people suffering stress and depression, he said in a speech.

Mr Clegg said mentally ill people should be allowed to limit their own access to bank loans to prevent themselves getting into debt.

He says people should be able to take action when well so they cannot acquire new loans when they are ill.

If you've been mentally unwell before, or are vulnerable to mental distress, you're going to be right back in the thick of it Nick Clegg Osborne blasts Brown's borrowing

In a speech at a mental health conference at Sheffield University, Mr Clegg said people with mental health problems are more likely to get into "unmanageable debt" during the economic downturn.

"I'm talking about an epidemic of mental distress, this will be the hidden tragedy of the recession," he will say.

As the reality of negative equity, home repossessions and job losses bites, there is bound to be an impact on people's mental health, he said.

"If you've been mentally unwell before, or are vulnerable to mental distress, you're going to be right back in the thick of it.

"And even if mental illness is completely new to you, the chances of you developing problems with stress, depression or anxiety are extremely high."

Compulsive spending

He argues depression makes it hard to motivate yourself and mania can lead to compulsive spending.

The Lib Dem leader will call for mental health professionals to be trained to recognise when people may be at risk of debt, while debt counsellors should be trained in dealing with mentally ill people "appropriately".

And he wants to expand a service where people can put a note on their credit rating asking lenders not to give them money.

Instead he wants people to be able to put a "generic freeze" on their credit rating, without having to specify they have mental health problems, so they cannot take out a loan.

Mr Clegg will also propose a system where people can ask their bank to monitor their accounts for "unusual spending patterns" - with a long notice period or need for joint authorisation from a friend or support worker, so it cannot be overridden when they are ill.

"Banks should put procedures in place to help customers who have disclosed their mental health problems and missed payments," he will say.

If they are unwell and have been unable to manage their finances, they should not be penalised with late fines and charges, Mr Clegg suggests.