Car prices are to be cut to fall in line with Europe as the Government moves to end rip-off Britain. New laws could be brought in by the summer after an official report revealed that Britons pay around £1,100 more for an average car than their counterparts in Europe.

The move is likely to hit car registrations during the next few months, until prospective buyers see prices tumbling.

Trade and Industry Secretary Stephen Byers said the Competition Commission report confirmed what many people thought - that Britons were paying "over the odds" for new cars.

The report found that prices in the UK have been between 10 and 12 per cent higher than in other European countries, even though two-thirds of cars sold in the UK are imported - and therefore should benefit from the high value of the pound.

Private car-buyers were typically paying about 10 per cent too much for the average car.

Mr Byers said he was introducing measures within two months to bring greater competition to new-car sales, which should mean lower prices and increased sales.

"These measures should restore confidence and bring certainty to the car market," he said.

He will be taking steps to ensure dealers offer private buyers the same discounts as manufacturers give to fleet purchasers, and some of these amount to 37 per cent off the recommended prices.

But the Society of Motor Manufacturers and Traders said there was "lit-tle scope" for significant price reductions and buyers were getting a good deal at the moment.

The difference in car prices was caused because Britain remained a "high currency market", not a high price market, the SMMT said.

It said that prices had been reduced in the past four years and this "very gradual process" would continue.

The Consumers' Association, which has championed the campaign against "rip-off Britain", said it was delighted the Government was taking action.

Sheila McKechnie, director of the Consumers' Association, said, "This is a victory for all those consumers who have supported our campaign over the past 12 months. We are delighted that the Government has rejected the car industry's lame excuses for overcharging and has committed to taking strong action to put the interests of ordinary consumers first.

"The decision is game and set to consumers. The match will be won when the block exemption is finally removed.

"Car manufacturers have been caught red-handed - it's time for them to play fair and cut their prices.

"It is a welcome first step in the transformation of the car industry into one that genuinely serves the interest of the consumer.

"The Government must not stop here. Only tough action in Europe to abolish the anti-consumer aspects of the block exemption will ensure that the road ahead remains clear for a fair deal for the British public."

The Society of Motor Manufacturers and Traders said the 1,200-page Competition Commission report removed uncertainty for buyers.

"We will be seeking to work with the Government to ensure that UK customers continue to buy with confidence from UK dealers," said SMMT chief executive Christopher Macgowan.

Even those within the industry have been unhappy with the current set-up. Alan Pulham, franchise dealer director of the Retail Motor Industry Federation, told the Competition Commission that motor dealers had seen their margins halved since the early 1990s.

He added that manufacturers had limited the ability of dealers to compete in the market place and the company car market was distorting the used-car market.

Car companies believe that the franchised dealer network ensures high quality of sales, service and re-pair.

The director-general of fair trading said the estimated annual cost to private car-buyers could be £1bn.

"In response to the findings, I am announcing that I will be introducing measures to bring about greater competition in the supply and selling of new cars, which should mean lower prices and increased sales."