Britain’s market watchdogs must be given new tools’ to prevent Google and other internet giants doing more harm to the economy and ripping off consumers, a key Government adviser has said.

John Penrose, who is leading a Treasury review of competition laws, said that new rules are needed to prevent huge online corporations strangling rivals and ramping up prices. That’s going to require some new tools,’ he added.

Mr Penrose’s comments came to light after the American government started legal action against Google in the US courts, piling pressure on British politicians and regulators to follow suit.

Mr Penrose, a senior Conservative MP, was last month appointed by Chancellor Rishi Sunak to review UK laws that are supposed to prevent big business becoming monopolies able to dictate prices and smother rivals.

The review is taking place as politicians and officials around the world become increasingly worried about the economic dominance of Google, Facebook and other tech titans such as Apple and Amazon.

Google receives around 90 per cent of all advertising spending by companies who want to display their products and services on internet search result pages. That brings the company revenues of around £7?billion a year in Britain alone, although Google pays UK taxes on just a fraction of its earnings. Facebook, meanwhile, has around half of the entire market for display advertising, worth around £5?billion a year.

The Competition and Markets Authority (CMA), Britain’s markets watchdog, this year found that Google and Facebook are able to demand inflated prices for advertising, pushing costs on to suppliers that eventually lead to consumers paying more than they should for goods bought online.

The CMA has appealed to Ministers to pass new laws giving it powers to take action over the tech giants’ market dominance.

Ministers say they are still considering the watchdog’s request, and some insiders say taking on Google and Facebook is not a priority for the Government.

In attempt to push the issue up the agenda, Andrea Coscelli, the CMA chief executive, last week gave Ministers a 12-month deadline to draw up new laws for the digital economy.

In an interview with website Global Competition Review, Mr Penrose said that new powers are needed for regulators and called for an update’ of competition rules for the online economy.

The digital economy has brought some amazing benefits, absolutely transformed our economy and society in many ways,’ he said.

But where it may potentially be causing harm, it may not be delivered in the same way as we are traditionally used to in the old analogue economy.

Therefore, we’ve got to update that so that we understand what is going on, so where there is harm being caused we are alive to it, we understand it and we can stop it.

That’s going to require some new tools.

They’ve got to reflect all these changes and we’ve got to make sure that we don’t ruin all the good stuff while we fix what we hope is a small amount of detriment.’

The Trump administration last week began a major legal battle with Google in the American courts, accusing the company of using its huge financial resources to maintain an illegal monopoly over search engine advertising, by paying mobile phone companies to make Google the default search engine on devices.

Google has strongly denied any wrongdoing, saying the lawsuit by the Department of Justice is deeply flawed’.

When the Brexit transition period ends in January, the CMA will take back competition powers now held by the European Commission.