Small firms have been warned that trading watchdogs will clamp down on cartels, however small the companies involved.

Simon Nichols, of law firm Morgan Cole, said most businesses had heard of the Competition Act, even if they had not addressed its implications.

He said: "Some may know of the draconian authority it gives the Office of Fair Trading, such as unannounced visits and the power to fine infringing companies up to ten per cent of their UK turnover."

He added: "Few businesses have taken steps to protect themselves against unwanted attention from the OFT and time is running out. "The OFT means business and has already begun to flex its muscles."

It wants small businesses to complain if they are subject to the effects of cartels, and admit if they are part of a cartel. The first cartel member to confess will be immune from fines under a leniency programme.

Mr Nichols also advised small firms to draw up a compliance programme now.

He said: "They must check that their trading arrangements do not infringe the Competition Act. The OFT will be more lenient on those that have such a programme."