At one point during our interview, Vince Cable describes Fred Goodwin, the former head of RBS, as “the late and unlamented Fred the Shred”.

He quickly corrects himself, saying “he’s not quite late is he, he's retired”.

But the slip is a sign of how the Liberal Democrat Business Secretary likes to shoot from the hip. He goes on to describe the collapse of RBS as a “disaster”.

And he pulls no punches on how he thinks an independent Scotland would have coped with RBS's 2008 collapse.

“(Scotland) would not have been able to (bail RBS out). It was the biggest bank in the world in balance sheet terms. It simply would not have been able to cope with that,” he says.

He adds: “Scotland would be very, very exposed to banking instability if the UK was not acting as the lender of last resort to the banks.”

He also warns that ordinary Scots could miss out on a windfall of RBS shares - an idea the Coalition is mulling - if Scotland became independent.

Asked if Scots would get a chance to benefit from such a move in an independent Scotland, he said: “No. It is at the moment vested in the British government.“

He insists that his “main priority” with RBS is to get the banking lending enough to business “and it isn’t doing that”. But he also raises the idea of splitting the bank.

“We have far too few banks in the UK and Scotland is particularly badly served because I think usually in any town in Scotland there are probably two, sometimes three banks and, for business, lending is highly concentrated in a very unhelpful way.

"One answer to that would be to have RBS operating through different units. I’m not promoting that because I realise it is technically quite tricky breaking up a big bank,” he says. But he adds that the idea has not been “ruled out”.

And he cautions that the Coalition Government should not “rush” RBS into private ownership.

“The case the Lib Dems have made is, when it does go back into private ownership, of transferring ownership to the public rather than small groups of shareholders,” he says.

“The public has got vast sums of money tied up in it as a result of having saved it from complete collapse. So it would be desirable if the public were to gain on the upside. I have railed in the past against the public absorbing the losses and the public sector all the profits, and there would be a very strong argument for creating an ownership structure in which the public at large was able to benefit from RBS’s eventual recovery.”

The interview takes place just over a week before George Osborne is set to unveil his Budget, and on a day when disappointing manufacturing statistics have just been published.

But Mr Cable insists that there are “good things” happening on the economic front.

“Levels of unemployment are not as high as you would have expected them to be for an economy that has not grown for quite a few years,” he says. “So I think the labour market story is a very positive one.”

In terms of next week’s statement, “none of us expect that the Budget is going to make radical departures.

“The government has got this very difficult and painful jobs of working down the structural deficit. At the same time I think what we are all expecting is clear support for economic growth initiatives.

“What I would hope that the Budget will do is sustain the narrative that the government is committed to restructure the economy."

He denies that there is a need for fewer u-turns than last year’s “omnishambles” Budget.

“Those episodes dominated the news but in terms of the magnitude of money involved they were not large. I think it was treated as a criticism of the government but actually what happened when criticisms were made of the so-called pasty and caravan tax, the government listened and adapted the policy and that is what sensible governments do rather than keep digging.”

But he admits that voters are struggling economically. “There is a lot of pain. This has been a massive crisis, It is well over a century since we last had a collapse in the banking sector and a recession of this seriousness. I think the only thing comparable was just after the First World War and a lot of damage has been done and a lot of people have been hurt and their living standards have been squeezed. But there are some positive signals.”

Last week he suggested more borrowing could be spent on capital investment. But the idea was shot down by Downing Street. Is he disappointed how his message was received? .

“No. And I will continue to make the case. Nick Clegg and I both said that we think that the cutback in capital spending which was actually launched by Alistair Darling in 2009 was very damaging and has hit the construction industry very badly. And there is frustration that it has not got going again in a way that people need. The government is trying a lot of things - guarantees and so on. But in a way I was making a case for a more aggressive approach to the issue.”

Mr Cable says his views have been shaped by his former life as a Glasgow councilor.

“Maybe I was at least partly influenced by my experiences in Glasgow where when I was there we were building 5,000 council houses a year. I think if we could be doing that nationally and giving local authorities the scope to borrow to build houses in that kind of way it would be very timely.”

Asked if he will keep arguing his case, he says: “I think a lot of people in government agree with me. The question is how you make it happen. Do you use guarantees which is what we are doing at the moment or do you do it more directly? We are talking about a balance of risks.”

“There is no right or wrong answer...the case for being more adventurous is growing.”

He says his view of the independence debate has also been influenced by his time in Scotland.

“I lived in Scotland for six years. My two oldest children are Scottish by birth. I have always considered it a part of my background and upbringing and the six years I had in Scotland were very productive and durable.

"And as you know I was very heavily involved in Scottish politics. It would be a wrench if the UK was split. And I think at the end of the day that would be true of most Scottish families because most of them would be divided.”

But he dismisses the SNP suggestions that use of the word separation to describe independence is pejorative.

“I don’t see why. It is a fact isn’t it? That’s what it would be.”

He is also bullish about the LibDems' prospects in Scotland at the next general election in 2015.

He says: “We knew in the first months of the (Coalition) government that we had taken a big hit in Scotland. That was because we had joined the government. We know that the Tories have a reputation in Scotland which is much more negative than in the South East of England which goes back to the poll tax and all that stuff. When I lived there (in Scotland) the Tories were not regarded with great affection.

"So when you work with them even if it is in a partnership that is in the national interest and even if you keep your identity you are going to lose a certain amount of support. We are conscious that might have happened in Scotland.

"(But) people are now much more positive. Eastleigh (the recent by-election) demonstrated that where we are strong we can sustain that position. A lot of our MPs in Scotland are MPs with a high reputation and I except them to hold their ground.

"I remember going into the last general election we had a lot of pessimism about Scotland. Previously we had Charlie Kennedy and Ming Campbell and people were saying well you no longer have a Scottish leader. You are going to lose lots of seats. In the event, we didn't. And it was mainly because where we are strong in Scotland we remained strong.

“I think people are underestimating the extent to where we have a solid base of support, good MPs, good councilors, that people will continue to support us.”