But the Government intends to limit LIG's ability to push up its prices by forcing it to abandon the use of exclusive supply agreements with retailers and wholesalers.
The decision by Neil Hamilton, the corporate affairs minister, follows the recommendations of a recent inquiry by the Monopolies and Mergers Commission.
The move is in effect a response to the runaway success of Mates, the condom brand launched by Richard Branson's Virgin group but now owned by Ansell Corporation, the Australian company that is part of Pacific Dunlop.
Price controls on LIG were introduced in 1982, following an earlier MMC inquiry. That concluded that LIG - which at that time controlled 91 per cent of the market - had a monopoly position which operated against the public interest.
LIG was accordingly made to adhere to a complex price formula that restricted increases to at least 1.5 per cent below an index of production costs. However, Mates has now captured more than 20 per cent of the market and LIG's share has fallen to 75 per cent.
As well as giving up exclusive supply agreements LIG's prices - and especially its sales to the National Health Service, which accounts for almost a fifth of all condoms used in the UK - are to be monitored by Sir Bryan Carsberg, director general of fair trading.
LIG said it was extremely pleased with the relaxation, which would increase customer choice and boost product development. However, the move is unlikely to have a significant impact on profits. Its UK condom business makes up less than 5 per cent of sales.
Mr Hamilton said the changes would lead to increased competition and more advertising and promotional campaigns. This would help to stimulate condom usage, 'with important benefits for public health and welfare'.
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