Plans to introduce minimum unit pricing will backfire as retailers will be encouraged to sell more cheap alcohol, the Office of Fair Trading has warned.

The watchdog is concerned that shops will have an incentive to push the alcohol brands that cost them less to buy wholesale. 

It said extra money from the price increases would go back to retailers rather than the taxman and warned this will undermine the free market and set a dangerous precedent.

In written evidence to MPs in the health select committee, the watchdog said: “The OFT is concerned that the unintended consequence of this increase in profit may be to give retailers an incentive to sell more, rather than less, low-cost alcohol.

“Retailers would gain additional profit for every unit of low-cost alcohol that they sold.

“At worst, such an incentive could dull the effectiveness of the minimum price in reducing alcohol sales.”

It added: “The price increase is also likely to generate windfall gains for retailers, as predicted by recent independent modelling carried out by researchers at the University of Sheffield.

“Unlike an increase in tax, additional consumer spending on alcohol would go to private firms rather than to the Government.”

The OFT found similar price controls in France and Ireland left households with a higher cost of living.

“By legitimising intervention to control prices in a competitive market, it will be harder for the Government to resist calls for similar measures in other parts of the retail sector in future,” it said.

The drinks industry and competition lawyers have already warned the plans could be illegal under EU law.

Sir Ian Gilmore of the Royal College of Physicians believes the plan could save 10,000 lives a year by making alcohol more expensive for heavy drinkers, while government estimates suggest a 40p minimum unit price could lead to 50,000 fewer crimes per year.

But the Scottish administration, which has already introduced a minimum alcohol price, is facing a legal challenge from the Scotch Whisky Association.

The trade body has lodged a complaint with the European Commission, claiming the move breaches free trade laws.