The Government is using the threat of a wholesale nationalisation of banks in an attempt to force institutions to lend billions to small companies struggling to survive as Britain slips into recession.

Downing Street yesterday made plain its fury over high street banks which refuse to use the massive injection of taxpayers' money they have received to come to the rescue of businesses hit by the credit crisis. Lenders have also faced criticism over interest rates charged to homeowners and for stepping up repossessions.

Meanwhile, Gordon Brown dismissed suggestions that he should take advantage of his reviving popularity by calling a June general election, insisting he was fully focused on steering Britain out of the downturn, starting with Monday's pre-Budget report.

It will spell out plans for tax cuts and assistance for the country's 4.7 million small firms. The aid will be funded by increases in government borrowing, which is on course to exceed £100bn next year. Alistair Darling, the Chancellor, will also announce that taxes will have to rise in the medium term to reduce the national debt. The financial stimulus package is designed to breathe new life into the economy but Mr Darling fears the behaviour of the banks could undermine the moves.

He is expected to announce controlson the interest rates charged on small business loans, as well as measures to stem the rising tide of repossessions.

Ministers are irritated that banks the Treasury bailed out are dragging their feet over passing on the money. The Treasury took stakes in HBOS, Lloyds TSB and Royal Bank of Scotland in return for £37bn of public funds. The banks promised to return lending to last year's levels. John McFall, the chairman of the Treasury select committee and an ally of Mr Brown and Mr Darling, raised the prospect of state control, saying: "If the banks do not play ball, and will not resume lending, then the demand for full-scale nationalisation may well grow."

No 10 refused to rule out such a step, regarded by officials as the "nuclear option". Mr Brown's spokesman said: "In these circumstances, of course we have got to look at all the options. But we want to work constructively with the banks to ensure they fulfil the commitments they have entered into."

Asked a second time about full nationalisation, he replied: "It would clearly be foolish for anybody to rule out specific options at this stage."The Government has made little effort to disguise its frustration at the behaviour of banks towards small businesses and mortgage-payers.

Mr Darling is preparing to use his pre-Budget report to fire a shot across their bows with tough demands on lending. He is not expected to impose further legal sanctions on banks, such as the appointment of a powerful watchdog to monitor lending rates, but officials want to keep options in reserve if the banks fail to respond.

As figures from the Council of Mortgage Lenders showed a 12 per cent increase in house repossessions in the third quarter, Mr Brown signalled further help was on the way for families at risk of losing their homes. He acknowledged that Northern Rock, which is already in public hands, was among the worst offenders. "We have been talking to Northern Rock about its practices and I think you will see some changes ... very soon," he said.

Mr Brown dismissed suggestions he could call a general election on 4 June, to coincide with European and local elections, if Labour's recovery in the polls is sustained into next spring. "My undivided attention is on the economy, I'm not thinking about anything else, it's 100 per cent of my attention and you just discount all these stories. I'm actually not thinking about anything related to internal politics."

Angela Knight, the chief executive of the British Bankers' Association, insisted that lending to small firms was at the same level as last year.

Meanwhile, Honda said that production would halt at its Swindon plant for two months, but none of its 4,800 workers would be laid off.

Belfast Telegraph