TESCO was under assault on two fronts last night for using its muscle as Britain’s biggest supermarket to buy and hoard vast amounts of land and for boycotting a scheme to encourage healthy eating.

The retail giant was attacked by MPs and the Food Standards Agency after defiantly rejecting the regulator’s call yesterday to introduce “traffic light” health warnings on products.

Tesco was also put on notice that it will be at the centre of an investigation by the Competition Commission into the impact of supermarket dominance on local shops and suppliers.

The Office of Fair Trading, reversing a decision made last year, said that it was likely to refer supermarkets for an inquiry that would cover claims that Tesco and the rest of the Big Four supermarkets were driving cornershops out of business. Tesco made profits of almost £2 billion last year on a turnover of £34 billion.

The supermarket said that it had nothing to fear from the commission, claiming that its relentless expansion was good for consumer choice. It said that it had already been through a series of investigations, including one by the commission in 2000, adding that the new inquiry was a “diversion of effort and resources”.

The retailer was accused of “arrogance” for its dismissal of the competition inquiry and its boycott of a “traffic light” scheme for sugar, salt and fat accepted by other supermarkets including Waitrose, Sainsbury’s and Asda.

The FSA wants retailers to put the alerts on food packs to allow consumers to make informed and healthy choices. It said yesterday that ready meals, breakfast cereals, pizzas, sandwiches, burgers, sausages, pies, chicken nuggets, fish fingers, and other chicken and fish products should be the first foods with the new labels and may be on sale before the summer.

Foods to be included later are biscuits, cakes, crisps, chocolate and sweets.

The FSA was scathing about the industry’s attempts to derail the “traffic light” labels. A paper circulated to its board members said: “Information as adopted by Tesco and several major manufacturers is not helpful and may be misleading.”

Big-brand manufacturers Danone, Kellogg’s Kraft, Nestlé, Pepsico and Unilever are determined to join Tesco in rejecting the voluntary scheme. They have adopted their own format for labels which includes a table showing the calories, fat, salt, saturated fat and sugar in a product. They refuse to use red symbols because they believe that consumers will be turned off by the colour.

Sue Davies, principal policy adviser at Which?, the consumer organisation, also supported “traffic light” labels and described the industry alternative as “a fudge”. She said: “Can you really tell me what shopper is going to go round the supermarket making complicated calculations about the amounts of fat or salt are in each product and how that fits into their daily diet?”

Steve Webb, the Lib Dem health spokesman, said: “A company the size of Tesco is in many ways as powerful as the Government. They have huge influence on our culture and what we eat. It is irresponsible for such a company to go it alone when it comes to public health.

“Its attitude to competition and food labelling is symptomatic of an arrogance on the part of big supermarkets.”

The Federation of Small Businesses welcomed the OFT’s decision to refer the £95 billion grocery market to the Competition Commission after finding that a restrictive planning system and land banks meant that consumers were “harmed”.

Carol Undy, its chairwoman, said: “This inquiry is not a moment too soon. When supermarkets, convenience stores and branded petrol stations are considered together, there is little doubt that there is a dominant position being taken by the Big Four supermarkets.”

Lucy Neville-Rolfe, Tesco group corporate and legal affairs director, said the company had nothing to fear. “The development of the UK grocery market has been good news for consumers precisely because of high levels of competition.”

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