Three-year campaign edges to fruition as late amendment tabled that will stop companies using laws to silence critics

A three-year campaign to reform Britain's "chilling" libel laws is days away from victory after the government did a U-turn on a key proposal which would prevent companies using defamation laws to silence their critics.

In an 11th-hour heave to get the defamation bill on the statute books, the government has tabled a fresh amendment that will prevent big businesses from suing newspapers, academics or citizens unless they can first prove "substantial financial loss" has been caused by their critics.

The amendment will mean a new law forcing a court to strike out an application to sue "unless the body corporate can show that the publication of the words of matters complained of has caused, or is likely to cause, substantial financial loss to the claimant".

Mike Harris, head of advocacy at Index on Censorship said: "We are cautiously optimistic that this should deliver the type of reform we were hoping for to stop corporations bullying individuals."

The lobby group has been at the vanguard of a campaign to change Britain's laws which has let to controversial including one which saw a big US healthcare company sue a British cardiologist, Dr Peter Wilmshurt, who criticised their research and another where the British Chiropractic Association sued a British science writer, Simon Singh.

The government blocked Labour's attempts to get a blanket ban on the statute books last week, but promised to reconsider the wording in the face of huge criticism that if the current libel laws weren't change, big businesses would continue to use their financial muscle to "take journalists out of the game".

Labour and Liberal Democrat MPs were concerned that companies were also using the laws to silence academics and doctors who had been sued for criticising medical companies and health practitioners.

"This amendment makes clear that bodies trading for profit must have suffered or be likely to suffer serious financial loss in order to satisfy the serious harm test for bringing a defamation claim," said a spokesman for the ministry of justice.

Labour will support this amendment when the bill returns to the House of Lords on Tuesday. Shadow justice secretary Sadiq Khan said: "We're pleased the government has accepted Labour's argument that a hurdle is needed before corporations can pursue defamation proceedings."

However, the party still has concerns over government opposition to a law which would prevent companies contracted by local authorities to sue citizen critics.

"We need a level playing field so that criticism of, say, a privately run prison is allowed just as it is allowed about prisons run by the public sector," said Khan.

The party will push for its original Lords amendment, which was removed in the commons last week, to be reinstated.

Lord Lester, who has spearheaded the campaign for libel reform, has tabled a third amendment aimed at putting belt and braces on legislation which bars local authorities from suing their critics.

This ban has already been established in case law following a dispute between Derbyshire council and the Times newspaper, but he is concerned that the Localism Act of 2011 undoes some of this precedent.

If the bill gets through the house of Lords on Tuesday it should have a safe passage to the statute books, ending a three-year battle by Lester and campaign groups including Index on Censorship, English Pen and Sense about Science.