A LEADING Scottish financier is planning a legal challenge to prime minister Gordon Brown's decision to waive competition rules to allow the merger of Halifax Bank of Scotland and Lloyds TSB.

Peter de Vink, managing director of EFGH Corporate Finance in Edinburgh, and a key figure in the 1980 battle to "save" Royal Bank of Scotland from a bid by Standard Chartered bank, says that the £500 billion banking bail-out this week "trumps" the early decision taken by the UK government to allow the merger to go forward.

"It is fairly clear now that what the UK government has done is totally illegal. Suspending the UK's competition rules was portrayed as the correct decision at the time but now that is no longer the case. If the part-nationalisation decision was taken a few weeks earlier, then HBOS would have had enough funding and liquidity to stay afloat," said De Vink.

"I fought very hard to save Royal Bank of Scotland against Standard Chartered in 1985. We conducted a popular campaign with great aplomb with George Younger, then the Scottish secretary, and Alex Fletcher leading the charge and we won that. I'm prepared to take this all the way on this issue too. I know there are a lot of people who will support me and that we should be demanding a judicial review. What Gordon Brown did is very serious - I thought that kind of behaviour went out with Henry VIII."

De Vink's move comes as fears have been raised over the potential loss of thousands of jobs in Scotland and a sharp reduction in competition in the mortgage and financial services sector in the UK. Last week City analysts were told by HBOS chief executive Andy Hornby and chairman Denis Stevenson that the cost-savings from the merger would now be £3bn, rather than the originally announced £1bn. Some estimates say that the loss of HBOS's corporate work for law firms and accountancy firms in Scotland will be as much as £60 million.

De Vink, who is a well-known Conservative Party donor, believes that the fallout from the proposed merger would have a detrimental impact on Scotland and that HBOS needs to look at other ways of getting out of the mess, rebuilding and returning value to shareholders and investors.

The Office of Fair Trading (OFT) normally conducts a report on competition matters which is then sent to the secretary of state who decides whether it should be referred to the Competition Commission. The OFT will be reporting to the secretary of state by October 24 about any competition issues. The difference in this case is that instead of the OFT making a recommendation to the secretary of state, which might then be forwarded to the Competition Commission, the government is using its special powers - under a new category of public interest - granted in the Enterprise Act 2002, to make it exempt from the competition act.

Under section 42.3 of the Enterprise Act, the secretary of state must view the case when he is presented with all the details and the case must be in the public interest. A key issue for those objecting to the merger is that when the secretary of state comes to review the decision on October 24, the situation that prompted the original decision will have changed dramatically.