An activist group today accused Gordon Brown and Alistair Darling of 'ripping up' competition rules in pushing through the merger of HBOS and Lloyds TSB.

A lawyer for the Merger Action Group (MAG) told the Competition Appeal Tribunal that public statements by the Prime Minister and Chancellor had fundamentally compromised the ability of Lord Mandelson, the Business Secretary, to evaluate the deal independently as he was legally obliged to.

Ian Forrester, QC, representing the Scottish group, which is opposed to the merger, said: “The dish had been precooked and the decision had been preordained that the competition rules were not to be invoked in this matter.

“The Government in the shape of the Chancellor and Prime Minister made the decision competition laws would be waived or ripped up.”

Mr Forrester, whose client is challenging Lord Mandelson’s decision not to refer the merger for further scrutiny, told a panel of three legal and economic experts that the Business Secretary acted unlawfully when he gave the deal the Government’s blessing.

This was partly because he “could not have failed to have been influenced by Government policy as had been made clear” but also because Lord Mandelson did not pay sufficient attention to the concerns of the Office of Fair Trading (OFT), Mr Forrester said.

The tribunal heard that the OFT, the UK competition watchdog, analysed the proposed merger as it would any other deal and presented its findings including some significant concerns to Lord Mandelson.

Had Mr Mandelson paid careful attention to these concerns as he was legally obliged to do, he could have decided that the merger could go ahead regardless and the MAG “would not be here today”, Mr Forrester said.

Instead, Lord Mandelson ignored or “chipped away” at the OFT’s concerns and substituted them for the “more useful” advice of the Financial Services Authority.

Referring to criticism that MAG were "mischief makers", Mr Forrester said it was “a group of responsible individuals with a real and legitimate interest”.

Paul Lasok, QC, for the Government, said that Lord Mandelson was not “a puppet”, but reached his conclusions on their own merits.

He questioned the right of MAG members to challenge the decision, saying they did not meet the test as set out by Parliament.

The CAT has fast-tracked the challenge ahead of a vote by HBOS investors on the deal Friday, which is expected to endorse the merger.

Lloyds investors have already backed the deal, with 95.98 per cent of votes in favour at a meeting last month.

HBOS said it was confident the appeal, which it called “an unhelpful and unnecessary distraction”, would not succeed.

The hearing is expected to conclude tomorrow.

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