Paint companies are offering body repairers backhanders as high as £500,000 in order to secure business, according to industry insiders.

The 'brown envelope bung' has long been talked about in accident repair but no-one has been prepared to admit they have given or received such gifts. Even confidential sources were reluctant to talk.

But discontent is increasing as the amount of money involved in these arrangements – termed 'golden hellos' or 'business development deals' – has grown astronomically and is now distorting the market.

Paul Buckingham, managing director of paint supplier R-M Automotive Refinish, said the practice of giving pre-paid discounts indicated the “sorry state” of the market, with “paint manufacturers having to pay bodyshops to use their products”.

He added: “This is another reason why UK prices appear to be higher than they really are. You get nothing for nothing: the pre-paid discounts are linked to prices, hence they are raised to cover the discount.

“Many paint companies have had their fingers burnt providing pre-paid discounts to bodyshops that have closed down or have been bought out, and there is some doubt as to where this money is being spent,” said Mr Buckingham.

The allegations were backed by another paint company executive, who claimed the situation was “ridiculously out of control”.

He claimed that two bodyshop chains had each received about £500,000.

“The problem isn't just the fact that money is being tied into these deals; it's where the money is going,” he said. “Offering up-front discount is one thing, giving someone a cheque that he inevitably spends on his personal life gets the industry nowhere.” He added: “The irony is that, with so many paint companies amalgamating these days, it stands to reason that, somewhere down the line, one division has paid a lot of money to take the business from another division of the same company.”

One paint company source claimed that the original concept was no more harmful than the introduction of free paint mixing schemes. “It happens in many industries – helping to kit out parts of the workshop so the business improves so they buy more product; it's marketing logic,” he said.

“Paint companies offered help with equipment and the cost was clawed back by tying the bodyshop into a few years of buying the paint. “It works fine in a free market but, with the polarisation of the bodyshop sector, the only way of gaining new business is to poach from other companies and the price for doing this has gone up considerably.

The bribe has got so high that it can't possibly really pay back, even over an extended period of time.”