State-backed Royal Bank of Scotland has hired a law firm to investigate claims of “unscrupulous” treatment of small businesses – described as “shocking” by Chancellor George Osborne.

A new report by Otley-based tycoon Lawrence Tomlinson alleges that the lender drove firms to collapse to buy back their assets at rock-bottom prices.

Mr Tomlinson, whose LNT Group includes a care home in Bradford, is an entrepreneur in residence at the Department for Business, Innovation and Skills, and said he had uncovered a dossier of evidence that RBS had deliberately forced companies into default to seize their properties.

At the time of his BIS appointment earlier this year the University of Bradford engineering graduate promised to tackle some of the key concerns around access to finance and improving bank lending to business.

His report into small business lending practices across the sector contains explosive accusations against RBS, which have now been passed to the City watchdogs by Business Secretary Vince Cable, who said he was “appalled” by the claims while Chancellor George Osborne said they were “shocking”.

RBS which is four-fifths taxpayer owned, confirmed it had hired law firm Clifford Chance to look into the claims.

Mr Tomlinson, who has been compiling the report independently for the past six months, focuses allegations on the turnaround division at RBS, its Global Restructuring Group.

The division handles loans classed as being risky and is understood to have powers to scrap loan deals, impose inflated interest rates and charge hefty penalties.

Mr Tomlinson’s report alleges that firms not necessarily in immediate financial distress are “engineered” into GRG, sometimes through small technical breaches of loan terms, such as late filing of minor financial information. They are then hit with exorbitant rates and fees, which in some cases cause them to collapse, allowing RBS to buy their property and assets on the cheap for the benefit of its West Register property arm.

His report claims that fees charged by GRG can run into hundreds of thousands of pounds. Mr Tomlinson said he was calling for “immediate action to stop this unscrupulous treatment of businesses”.

He added: “From the cases I have heard, it is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in GRG and subsequently take their assets for the West Register at a discounted price.

“There are many devastating stories of how RBS has wrecked good businesses and the ruinous impact this has on the lives of the business owners. I look forward to seeing how RBS proposes to take forward the forensic investigation into this part of the bank.”

The report found a “disproportionately high” number of complaints against RBS, but also found similar examples at other banks, including Lloyds.