The UK's top five supermarkets were today accused of colluding to fix the price of dairy products despite a previous warning, resulting in a £270 million cost to Britain's shoppers.

The Office of Fair Trading (OFT) has set out findings indicating that Tesco, J Sainsbury, Wm Morrison, Safeway (now part of Wm Morrison) and Asda conspired with the dairy processors Arla, Dairy Crest, Lactalis McLelland, the Cheese Company and Wiseman to fix the prices of milk, butter and cheese.

The OFT's provisional findings are that the companies engaged in price-fixing over a two-year period, in 2002 and 2003, and that the practice was harmful to consumers by restricting the competitive process, leading to higher prices.

It emerged today that supermarkets have previously been warned by the OFT that their actions might be anti-competitive.

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The maximum penalty the OFT could impose is a fine of 10 per cent of "relevant" turnover on the supermarkets and the dairy producers.

For example, Tesco reported full-year global sales of £46.6 billion and of that, £32.6 billion was generated by its 1,988 UK stores. The OFT could fine the group 10 per cent of total UK turnover that was generated by sales of milk, butter and cheese.

Sean Williams, the executive director of the OFT, said: "This is a very serious case. We believe supermarkets have been colluding to put up the price of dairy products. Consumers have lost out to the tune of hundreds of millions of pounds.

"This kind of collusion on price is a very serious breach of the law. Businesses should understand that where we find evidence of this kind of anti-competitive activity we will use the powers at our disposal to punish the companies involved and to deter other businesses from taking such actions."

The OFT must now wait to receive the parties' responses, which will then have to be reviewed to decide if the law has been breached. A non-confidential version of the OFT's provisional findings will be published in October.

A spokesman for Tesco said this morning: "We will vigorously defend any allegations that we have not acted in the best interests of consumers." Shares in the supermarket rose from 436p to 438p.

Asda said: "Naturally we are disappointed with the allegations and are considering our position."

Sainsbury's said: "Sainsbury's is reviewing the statement of objections and will be vigorously defending its position."

Wm Morrison issued a robust response today, stating: "Morrisons firmly believes that it was not directly involved in the Dairy Products Retail Price Initiatives that are the subject of the OFT's inquiry."

The group said it was aware that the OFT had been investigating Safeway's conduct prior to its acquisition by Morrisons but said it had not seen any evidence of its own involvement in price fixing nor had it been asked for documents.

It said: "Morrisons continues to seek to ensure the best value for our customers, whilst also paying fair market prices."

Dairy Crest noted today's statement by the OFT and said it has cooperated fully with the three year investigation and will continue to do so.

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