The move came after Tory and Liberal Democrat MPs backed the Advertising Association and the IPA, which warned that proposals to ban "ambush advertising" would damage the industry.
Ministers have bowed to pressure from the International Olympic Committee to prevent other advertisers who are not official sponsors of the games from cashing in on the event. The London Olympics bill now before Parliament would give the government sweeping powers to ban billboards, balloons and other ads in the undefined "vicinity" of Olympic venues.
Richard Caborn, the sports minister, told a committee of MPs examining the bill on Tuesday that the government would consult the ad industry before bringing in regulations. "It would be foolish not to consult the industry," he said. "There will be at least two years' notice for those affected." He promised the rules would be "proportionate" and based on "common sense".
Although his comments were welcomed by critics of the bill, they want him to go further. Don Foster, the Liberal Democrats' culture spokesman, has tabled a series of amendments that would ensure "light touch" controls over ads.
The Tory MP Maria Miller, a former Grey and Rowland executive, said the ad, newspaper and broadcasting industries feared the "vicinity" clause would create uncertainty and be unworkable.
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