Mervyn King, the governor of the Bank of England, has launched a blistering attack on Britain's banks, describing the £1tn government support given to them as "breathtaking".

In an outspoken speech last night, in which he made his clearest call yet for the banks to be broken up, King warned that the British people will be paying for the cost of the financial crisis for a generation.

"To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform," he said.

King's comments came as several banks, which either weathered last year's maelstrom, or survived only because of big government bailouts, are preparing to pay out billions of pounds in bonuses.

King criticised the industry's failure to reform and told business leaders in Edinburgh that the current regulatory arrangements were impractical. It was "hard to see why" support could not be limited to retail, or utility, banking, he said.

"Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are," he said.

He added: "The case for a serious review of how the banking industry is structured and regulated is strong."

King said the government would have to put the public finances on a more sustainable footing and warned people that they would have to become savers rather than spenders in the years ahead.

"Although there are no simple answers, it is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities," the governor said.

He told bankers not to return to the practices of two years ago before the credit crunch began.

"It is important that banks in receipt of public support are not encouraged to try to earn their way out of that support by resuming the very activities that got them into trouble in the first place," he said. "The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the 'too important to fail' question."

George Osborne, the shadow chancellor, said: "Mervyn King's speech is powerful and persuasive. His analysis of how the government's system for regulating banks failed and how there has been 'little real reform' since is one I share."

The Office for National Statistics yesterday reported a record September deficit of almost £15bn and an all-time high of £77bn for the first six months of the fiscal year, more than the previous record under John Major's government for the whole of 1993/94.

It also said total net debt rose to £824.8bn at the end of September, equivalent to 59% of GDP.

Excluding the cost of bank bailouts, net debt was considerably lower at £682.8bn, or 49% of GDP, not high by international standards but well above the government's self-imposed limit of 40%.

King said the figures showed that as part of a wider rebalancing of the economy away from imports and consumption and towards investment and exports, the public finances would need to be brought under control.

"That is consistent with the need, now widely accepted, to eliminate the large structural fiscal deficit and to raise the national saving rate."

The governor is aware, though, that cutting public spending and raising taxes too early could threaten the nascent economic recovery that is likely to be confirmed by growth data for the third quarter due to be released on Friday.

The Conservatives seized on the borrowing figures, saying they showed the extent of the debt crisis under the present government.

"A responsible government would act immediately to start reducing public spending and bring Britain's deficit down," said Philip Hammond, shadow chief secretary to the Treasury.

"Failure to act will risk interest rate rises, causing the recovery to falter and putting jobs at risk."

But Liam Byrne, the chief secretary to the Treasury, insisted it would be a mistake to cut spending at this point.

"Today's figures are broadly in line with our forecast and reflect our action to lock in the recovery and get the economy growing again by the turn of the year," he said.

Alistair Darling will present his pre-budget report to parliament in about a month and may need to revise his budget forecast of a £175bn deficit for the current year, according to economists.