TRADE Secretary Stephen Byers has referred Lloyds TSB's proposed takeover of Abbey National to the Competition Commission.

Mr Byers said the proposed acquisition raised enough competition concerns to warrant a reference to the commission.

"The proposed merger would lead to the elimination from the market of one of the most significant branch-based competitors to the UK's four largest banks," he said.

"This might result in a substantial lessening of competition, particularly in the market for current accounts.

"The merger would also remove a potential competitor in the provision of banking services to small and medium-sized companies," he added.

The commission is due to complete its report on the proposed takeover by June 12.

Unions immediately welcomed the decision. Rory Murphy, joint general secretary of Unifi, the banking union, said: "This is good news for staff and customers. It also sends a strong message to the larger banks that the carve-up of the finance sector will not proceed unchallenged."

Linda Rolph, general secretary of the Abbey National Staff Association, said: "We hope the Competition Commission will give greater consideration to the consequences of branch closures and the impact of this takeover on the socially and financially excluded."

After Lloyds results last week, chief executive Peter Ellwood reiterated the bank's pledge not to close any of Abbey's 700 branches in the first two years of the merger, should it go ahead.

However, when Lloyds made its £19bn takeover bid last month it said, after the first two years, it expected to cut 9,000 jobs from the combined total staff of 100,000 over four years.

In response to the DTI announcement, Lloyds TSB said its original pre-conditional offer had now lapsed.

But it stressed the markets in which it and Abbey National operated were highly competitive and "further consolidation was inevitable".

A combination of Lloyds and Abbey would lead to a more extensive range of products, delivered through more branches and other channels, it argued.

Mr Ellwood said: "We continue to believe that this proposed transaction would represent the most valuable option available to Abbey National shareholders and would deliver considerable benefits to customers.