Lord Oakeshott has left his Treasury role "by mutual agreement" after criticising the Government's Project Merlin bank deal. The departure was confirmed live on Channel 4 News by Danny Alexander.
Lord Oakeshott will no longer speak in the Lords on behalf of the Liberal Democrats on Treasury matters after his departure from the role was revealed on Channel 4 News by Lib Dem Chief Secretary to the Treasury Danny Alexander.
Earlier Lord Oakeshott had branded George Osborne's agreement with the banks - aimed at reducing bonuses and increasing lending - as "pitiful" and "incompetent".
He also sent a text message to Economics Editor Faisal Islam which, in response to an interview request, read: "sorry no. I'm unhappy with banking agreement and have decided I shd go to backbenches."
Under the "Project Merlin" scheme the major banks will have to pay lower bonuses, lend more to small businesses, and curb the pay of their top executives.
Mr Alexander said Lord Oakeshott had felt "unable to support" the Government's arrangement with the banks.
"As a result he's no longer a Treasury spokesman in the House of Lords by mutual agreement," he told Channel 4 News.
"I think that's the right decision."
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The Lib Dems said Lord Oakeshott had held no formal role with the party since last May's general election.
However, he did attend the party's backbench Treasury committee and has spoken in an informal capacity for the party.
He is quite a senior Lib Dem and he is close to Vince Cable, that is a potential source of instability in the government. Cathy Newman
"He attends the committee and has been speaking in an informal role as a Treasury spokesperson," a party spokesman said.
He added that Lord Oakeshott had not been sacked as "there is no post from which he could be sacked" but "it has been agreed he no longer speaks for us on Treasury matters".
Political Correspondent Cathy Newman said: "This is significant in that it shows the tensions in the coalition.
"Lord Oakeshott had a kind licence to speak out as a senior Lib Dem who could reflect the views of the party, which weren't necessarily at one with the views of the Lib Dems in the Government.
"It was felt today that he went too far - talking about Treasury negotiators not being able to negotiate their way out of a paper bag and that this whole bank deal was 'pitiful'.
"Now I just received a text from him saying that 'I've decided I'd be more comfortable as a backbencher because I'm very unhappy with the banking agreement'.
"He is quite a senior Lib Dem and he is close to Business Secretary Vince Cable, that is a potential source of instability in the government."
09 February 2011