I'm not quite sure what the coalition is trying to achieve by publishing but - aside from the fact that a few trees have been wasted to produce the document - the content is deeply patronising and offensive to the thousands of British businesses who are desperately seeking capital.

Last week, I had high hopes that by announcing the paper's publication, business secretary Vince Cable recognised the scale of the problem. After all, Saint Vince was the one (albeit self-anointed) who predicted the crisis, and it has become blindingly obvious that the lending crisis is risking Britain's economic recovery. The estimated £1 trillion bank bailout has not led banks to resume lending to businesses, and since the 2008 crisis lending figures have been positive in only three months. The banks claim that there is no demand, while business groups say they are not applying for loans because they expect to be rejected and interest rates are too high.

The paper starts off by stating the glaringly obvious - that "businesses need finances for both working capital and investment purposes" - but that's about as good as it gets. It becomes apparent early on that this paper has George Osborne's fingerprints all over it. There is praise for the banks, but there is nothing here for small businesses: no new instruments to generate lending, no incentives to banks, no new government schemes - nothing.

One of the most shameful points is when the coalition praises banks for having improved their financial position since the crisis - surely not much of a surprise given the amount of cheap money they've borrowed from the bank of England (BoE), and the massive taxpayer bail-out - but then points to the BoE's financial stability report published last month, which states that if major banks limited bonus levels to 2008 levels, they would generate £10 billion of extra capital in 2010 which could sustain £50 billion of new lending. The notion that banks cannot lend because their capital positions are too weak, and there is no demand, is immediately blown out of the water. The money is there, they just would rather pay bonuses than lend to businesses.

As the green paper states, there are around 4.8 million small businesses in the UK, which account for over half the UK's private sector employment and turnover. And the green paper acknowledges their difficulties in accessing capital, adding that SMEs are "vulnerable" and will "face more of a challenge given their reliance on bank lending". It also cites survey evidence from the Warwick business school that many SMEs may have funded themselves through credit cards or overdrafts.

However, it offers no ideas on how to help. Instead, it focuses on accessing debt capital markets and equity markets, which are an alternative to conventional bank lending, but not if you are small business or a start-up. The idea that thousands of businesses of fewer than 10 employees, as most SMEs are, are going to raise millions through venture capital is simply barmy. At one point, having previously stressed the problems lending problems facing SMEs, the coalition paper even performs a complete U-turn, falsely stating that "the majority of businesses can now raise the finance they require" and that "businesses generally are not experiencing severe financial constraint". It really is that bad.

The tragedy is that viable alternatives do exist. The government could offer greater tax incentives to banks to lend, increase the funding and size of the enterprise finances guarantee which is due to expire next March or introduce strong government loan guarantee schemes to encourage banks to provide credit to innovative new businesses.

If, however, these are too complicated or the government deems them too expensive as they embrace austerity, a simple solution is on offer. As we know, taxpayers own large stakes of numerous high-street banks, while the likes of Northern Rock and Bradford and Bingley are effectively entirely nationalised. So, if the conventional financial markets continue to fail and banks refuse to lend, why not convert one of these ‘bailed-out' banks into an industrial investment bank and a green investment bank? These banks would provide a state alternative to the private sector and, most importantly, since both British industry and green technologies are, for different reasons, in need of more than just a ‘quick fix', they would take a medium-term approach to investment.

While some will cringe and think I am talking about creating monolithic centralised state banks, there is no reason for this to be the case. Local authorities and social partners should have a role in the allocation of funds, while decisions could and should be taken at a local rather than centralised level. These institutions could also part of a decentralisation of the banking system, and be combined with regional stock exchanges to help develop regionally focused sources of finance.

Some, many even, will disagree with me about the viability of such vehicles. But, for all its rhetoric, the government simply has no ideas to offer on how to finance a private sector recovery. It is vital that Labour comes up with some.