Competition authorities today moved to unwind a £77 million takeover by Capita, the outsourcing giant which until recently ran London's congestion charge.

Last year, Capita struck a deal to buy stock market-quoted IBS OpenSystems, which provides software that helps local authorities and housing associations process the collection of council tax and business rates.

It also helped organise certain benefit payments.

But in a provisional conclusion to its probe into the deal today, the Competition Commission said it would make Capita too powerful in the field as it was previously a close competitor of IBS.

“In a stable market with little prospect of entry by new suppliers, our provisional conclusion is that the enlarged Capita revenue and benefits business will be able to take advantage of the lack of competition by increasing prices or reducing levels of service to its customers,” said Christopher Clarke, who led the inquiry.

Capita may now be forced to sell the whole business, although the commission may still allow it to keep the part of IBS which was specialising in social housing software.

It responded: “These findings are provisional. Capita will continue to make its case to the Competition Commission in the continuing inquiry.”