Controversial measures to boost the number of supermarkets and encourage huge new superstores on the edge of towns are expected to be backed by the Competition Commission.

A series of confidential papers circulated recently to interested parties suggests that the present “needs test”, which now prevents the building of too many supermarkets in a town centre, should be dropped. The plan, fiercely opposed by small retailers and environmentalists, is in line with government proposals in last year’s planning White Paper.

Under the needs test, councils assess the need for a supermarket against local requirements and population levels. Put simplistically, one supermarket is needed for roughly 50,000 people.

Hazel Blears, the Communities Secretary, has made clear that she wants to drop the test, but has proposed a tighter market impact test to help to protect smaller retailers.

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The commission may also recommend changing the “sequential” test to boost the development of supermarkets on the margins of towns. At present, the test favours building in town centres, then on the edge of towns and finally out of town. Organisations representing small shops have strongly opposed both moves.

Plans to stop the proliferation of “Tesco towns” by promoting competition between retailers will also be backed by the Competition Commission today. Tesco is by far the largest supermarket chain and in some areas such as Bicester, Oxfordshire, clusters of five or six stores are operating practically side by side, pushing out local retailers out of business.

The commission is likely to recommend a “competition test” where authorities would have to take account of how many outlets a supermarket already has in a particular area. If there were too many Tesco’s locally for example the council could support an application from Asda or a local retailer instead.

The commission’s plan to introduce a competition test has been fiercely opposed by Tesco, which now dominates the market and has amassed large land banks in and around towns. Tesco, which risks being forced to sell off its land banks, has argued that the proposals are “not reasonable, practicable or proportionate.”

Under the commission’s recommendation, the council would assess the number of supermarkets owned by one chain in a ten-minute driving radius for an urban area, or fifteen-minute radius in a rural one. Sandra Bell, supermarkets campaigner for Friends of the Earth, said that the competition test would fail to protect small shops. “A competition test would help to stop the proliferation of Tesco towns but it would do nothing to encourage real diversity in our town centres.

“The Competition Commission has made it clear that it wants planning policy to be weakened to make it easier for big supermarkets to build new stores on the edge of and outside of town centres and may recommend scrapping key planning tests to achieve this. Such a move would come at the expense of specialist shops and real choice, and would be in direct conflict with government commitments to boost town centres and reduce car use.”

A spokesman for the Department for Communities and Local Government made clear that it was committed to protecting the viability of town centres. “That’s why we are introducing a new, tougher impact test that better protects town centres and leads to more consumer choice and increased competition in the high street. We will shortly be publishing proposals for consultation.”

James Lowman, chief executive of ACS (the Association of Convenience Stores), which represents 33,000 local shops, said: “Introducing a competition element in addition to the existing tests would have an effect on the identity of the retailer opening each site, but should not be used to promote more development against the wishes of local people.”

Deal or no deal? Supermarket ploys

— Farmers have to pay for promotions such as buy one, get one free. They get paid for one item and effectively has to hand over the other for nothing A farmer has to pay to be “preferred supplier” to a supermarket without knowing how much he will get for a contract or the amount of produce needed

— Even after a farmer has agreed a contract price with a supermarket, if the store decides to buy more produce, he is forced to accept a lower unit price. This is known as retrospective discounting and the farmers lose out

— If a supermarket buyer overorders or if stocks fail to sell because of the weather, the farmer is often forced to accept price cuts for unsold goods or waste

— Supermarkets are wary that new products might not sell. To cover any losses, farmers are asked to pay for the product to appear on shelves. This is known as a “slotting allowance”

— Supermarkets also demand fees from farmers for popular products to stay on sale. These are known as “pay-to-stay” fees