Block Exemption has moved a step further to being abolished in its current form as an influential Parliamentary Committee backed recommendations that it be scrapped.

Competition and consumer affairs minister Dr Kim Howells recommended support for both European Commission and British Competition Commission investigations that concluded Block Exemption - the selective and exclusive vehicle distribution system - was flawed and could not continue.

Speaking in the House of Commons at a European Standing Committee, Dr Howells told members: "We support the European Commission's conclusion that the regime is failing consumers in important ways and that is in line with the findings of the our Competition Commission. "We welcome the comments made last year by Commissioner Mario Monti the effect that the car distribution regime in the EU should be reformed in a way that outs the consumer in the driving seat.

"However, we do not have any settled view on the precise content of such a change or a checklist of points that a successor regime will have to contain.

"We think that the Block Exemption has certainly encouraged manufacturers to pick and choose the price at which they sell cars in different locations, in what is supposed to be a single market." However, he warned against 'knee-jerk' reactions to scrap the entire current system and instead said efforts had to be made to keep the parts that work.

Richard Page, member for South-West Hertfordshire, told the committee he felt that manufacturers providing cut-price deals for fleets had been at the heart of the problems for the industry, as he felt a –two-tier pricing structure developed with fleets paying much less than private buyers for the same vehicles.

Dr Howells said: "I have tried to suggest that I see little virtue in the continuation of the block exemption, but I can not accept that it has no redeeming features – those on safety, for example, although they need not be part of a block exemption. It is essential that nothing in the successor regime compromises safety." Members of the committee backed his comments in a motion that agreed with both UK and European Commission findings that the Block Exemption no longer served its purpose in its present shape.

David Evans, chief executive of the Retail Motor Industry Federation, said he welcomed the news that the Government wanted to keep the best parts of Block Exemption instead of 'throwing the baby out with the bath water'.

He said: "Product recall and safety warranty are things that the consumer needs in Block Exemption and must be taken forward."