Agree with the above to be honest. The reason for his small size and his shyness is likely due to the other dragon. Beardies don't have to physically fight to be intimidating and dominant; it could be as much as a look, a posture or one lying on top of the other. It sounds like the smaller one has been intimidated so much that he's afraid to bask, expose himself to the UV, get the food he requires etc.
The stress that he is suffering through atm is likely to cause him to become ill a lot quicker and more severely too. It really is best for both dragons if you split them up. Also, are you positive on the sexes?