LONDON, May 9 (Reuters) - Britain's coalition government proposed to streamline employment laws and reform business regulation in new legislative plans on Wednesday, but critics said ministers were shrinking from taking bolder action to drag the economy out of recession.
The broad parliamentary programme, disclosed according to tradition by Queen Elizabeth, will also split banks into retail and investment arms, reform the upper house of parliament and the utility market and create a "green investment bank".
The coalition of Conservatives and Liberal Democrats, struggling after just two years in power to push through deep spending cuts with an economy back in recession, has come under fire for failing to kickstart growth and job creation.
"My ministers' first priority will be to reduce the deficit and restore economic stability," said the Queen at the start of the speech written for her by the government and delivered in the red-and-gold splendour of the House of Lords.
She was addressing an audience of seated Lords in wigs and fur-lined robes and elected members of the lower House of Commons, standing at the back in suits, in an elaborate ritual reflecting the British parliament's long and tumultuous history.
"Jubilee year, double dip recession - what a start," quipped veteran left-wing Labour parliamentarian Dennis Skinner as the ceremony got under way. The Queen this year celebrates her Diamond Jubilee, meaning she has spent 60 years on the throne.
The legislation she outlined is expected to ringfence the finance industry's riskier operations from everyday retail banking and bring forward an increase in the state pension age.
The plans also included a pledge to reform laws surrounding defamation, a nod to Britain's reputation as destination for foreign "libel tourists" seeking an easy win, and a controversial move to boost digital surveillance.
"So far all this seems like shuffling deck chairs on the Titanic. They really don't seem to be doing anything to do with the economy," said Sam Bowman of free-market thinktank the Adam Smith Institute.
Many of the government's ambitions for this year have been widely trailed, leaving ministers little ammunition to fight back after a drubbing in local council elections last week.
Tensions between the coalition parties have made it hard for Prime Minister David Cameron to deliver a more right-wing agenda, as demanded by a vociferous wing of his own party.
"I wish he'd played a harder ball game but I recognise that, if our first task is to reduce the deficit and eventually cut the public sector debt, then he's got to be in government to do that," Conservative lawmaker Brian Binley told Reuters.
Plans to reform the unelected House of Lords to make it more democratic and accountable have been kicking around for the last century but have never fully materialised.
Critics say that many Lords, as well as members of the Commons who hope to be appointed Lords after they step down, are opposed to reforming the chamber because of self-interest.
The Lords are a mix of politically appointed peers, hereditary nobles and bishops. Their role is to complement the work of the Commons in making laws and scrutinising the government, but the Commons has primacy over the Lords.
For the Liberal Democrats, the junior partner in the Conservative-led coalition, Lords reform is an article of faith though many in Cameron's ranks are fiercely opposed to the reform plans as they stand.
"This move will substantially cut the number of peers and allow the people to elect 80 per cent of the second chamber. I firmly believe that those making the laws should be accountable to the people and not given a seat by some ancient right," said Lib Dem lawmaker Julian Huppert.