Margareta Pagano: If Osborne hankers for his day in the sun he should break up RBS

George Osborne is having a good run. The tears he shed at Baroness Thatcher's funeral showed us there is a heart beating beneath that hair-shirt.

Then came the far better than expected GDP figures on Thursday which revealed that his medicine may not be so toxic after all. The GDP figures – showing slender growth of 0.3 per cent – have at least given him a get-out-of-jail card, for now. So it's a perfect time for Osborne to use this moment in the sun and go for the impossible – he should take a deep breath and break-up RBS into a good-bad bank.

It would be a brilliant political move, earn him a few more plaudits with the public but, most crucially of all, get juice into the engine of the real economy.

RBS has the biggest share of the small business market but lending is in decline with loan applications down by half. Whether it's because businesses are too frightened to ask for loans or RBS is refusing to lend is not clear but there's no doubt SME lending is paralysed.

It needs a jolt. There's only one way – by shaking up RBS; create a fresh new retail bank out of an old – NatWest would do – a bad bank with dud loans and a stand-alone, slimmed-down investment bank. It may even be good for investors because of the transparency.

While Osborne is said to look at such plans favourably, he's also worried about changing his mind mid-ship – and terrified of annoying the banking lobby. He shouldn't be, but he should be frightened of the public's vote in two years' time.

It would be easy for Osborne to present a new spin; to say that he's looked again at the situation and that it's better to take those losses onto the national debt than to have them sitting in RBS and stopping the economy from growing.

As Sir Mervyn King, the Bank of England Governor, has persistently argued, the present arrangement in which the Government owns 82 per cent but runs the bank at arm's length is a nonsense. At Westminster, Osborne's nickname is "submarine" because he's invisible yet lurking in the depths. Time for him to come up for air and make a few waves.