Graeme Odgers, chairman of the Monopolies and Mergers Commission, said yesterday that the Office of Fair Trading should be allowed to make direct references of mergers to the MMC, reducing the ability of ministers to intervene in takeover battles.
His proposal would shift the balance of power from politicians to officials and radically change the background to City takeovers, where ministerial decisions on references are often crucial to the outcome.
It follows a similar call by John Bridgeman, the director general of fair trading, who said before Christmas that there was a case for giving him the right to bypass ministers in making merger references.
Mr Odgers said the present system "arguably introduces a political input at too early a stage of the regulatory process".
The two most senior competition officials have unveiled their proposals as the Government draws up a detailed consultative document on changes in competition policy, which is to be published in the spring. But the Department of Trade and Industry said there were no plans to change present arrangements for merger references.
These are currently made only by the Secretary of State for Trade and Industry, after receiving advice from the director general of fair trading.
The vast majority of recommendations by the OFT to refer takeovers are in practice accepted by the DTI, but the refusals tend to be high-profile and politically sensitive cases.
The OFT said that since 1976 the government had overturned OFT recommendations 19 times, including once under Mr Bridgeman, when Ian Lang, President of the Board of Trade, rejected an inquiry into the takeover of Norweb by North West Water. Recommendations by his predecessor, Sir Bryan Carsberg, were overturned three times. In one of them, the GEC bid for VSEL, the submarine-builder, Sir Bryan said there were no competition grounds for a reference - but the Government sent the bid to the MMC on public interest grounds.
Mr Odgers said that even after giving the OFT the right to make direct references, ministers should retain the power to make their own merger references.
If the move to direct references were accepted, it would bring merger cases into line with monopolies law, where the OFT already sends cases to the MMC without going through ministers first.
With monopolies references, the Government also has the power to veto a reference made by the OFT. But ministers are likely to find that a veto imposed after a decision by the OFT is harder to justify in public than the present system, in which ministers simply reject advice.
Mr Odgers also called on the Government to embark quickly on a number of reforms of competition law. But he made clear that he rejected proposals for a radical change that would merge the OFT and the MMC into a single body and bring British monopolies law in line with European practices.
Mr Odgers backed a strengthening of the investigative powers of the OFT and also giving it powers to put an immediate stop to some anti-competitive practices such as predatory pricing.
At the moment, no action can be taken until after inquiries are completed, and sometimes the businesses affected have collapsed by then.
Mr Odgers said the Government had also recognised the need to replace the Restrictive Trade Practices Act with legislation on the lines of Article 85 of the Treaty of Rome. "I would like to see these changes implemented quickly" he added.
The Government has been promising action for several years but there was no legislation in the Queen's Speech and the next step is only a government paper.