Almost £500 million of taxpayers’ money will be spent on covering the costs of the bungled implementation of a new payment system to English farmers, a parliamentary inquiry reports today.

The Single Farm Payment Scheme, introduced two years ago, aimed to pay farmers for their stewardship of the land rather than the number of animals they reared for meat.

But farmers have faced severe financial hardship as they waited months for their cash, and it may take another 18 months for the system to be running smoothly. By the payment deadline of March 2006 only 15 per cent of the £1.5 billion due to English farmers had been made. Even in May this year 24 farmers were waiting for their 2005 subsidies.

MPs on the Public Accounts Committee (PAC), which ensures that public spending is value for money, say that the Government’s handling of the Common Agricultural Policy reform is a textbook case of how not to set policy.

Edward Leigh, the Tory MP who chairs the committee, described the episode as “a masterclass in bad decision-making, poor planning, incomplete testing of IT controls, confused lines of responsibility, scant objective management information and a failure by the management team to face up to the unfolding crisis”.

He also heaps blame on Sir Brian Bender, former permanent secretary at the Department for Environment, Food and Rural Affairs, now the senior mandarin at the Department for Business, Enterprise and Regulatory Reform, and says he “bears a large part of the responsibility”.

It is rare for MPs to name and shame officials but this is the second time that Sir Brian has been castigated for the shambles. He was criticised earlier this year in a similarly damning report into the episode by MPs on the Environment, Food and Rural Affairs Select Committee.

The report today says he must bear responsibility for administrative failure that has led to additional costs that could exceed £400 million.

So far only Johnston McNeill, former chief executive of the Rural Payments Agency, has been made a scapegoat over the fiasco. He is accused today of failing to tell his bosses at Defra that the project was high risk and in danger of failing.

The PAC blames the failure partly on the complicated formula for the payment scheme. Ministers decided that farmers in England should be paid an entitlement based in part on amounts they had traditionally received in state handouts. In addition a flat-rate sum was paid on the amount of land a farmer owned.

The Government had failed to take into account the increased number of claimants for payments under the new regime. In 2004 there were 70,000 farmers receiving subsidies but under the reform, vegetable and fruit growers, hobby farmers and anyone owning a piece of land was eligible for some cash for their stewardship of the countryside. The number of claimants soared to 116,000. Of these, about 14,000 were seeking less than £68, and a further 28,000 claimed amounts from £68 to £682. The PAC said that the Government should have set a £68 minimum threshold for claims to save on administration costs.

MPs are also concerned that the Government pressed ahead with a “highly risky project” at a time when the Rural Payments Agency was making 1,000 of its 2,800 staff redundant. The agency then had to bring in casual staff to process the claims.

Farmers were frustrated because they were unable to get any information from officials about the status of their claims. Instead of one official dealing with a single claim, work was shared out by specific tasks and it meant a farmer having to call various officials at different regional offices.

Even then, automated phonelines provided unhelpful responses such as “There is nothing that the call centre staff can tell you about your payment”, or “If you contact us, this will divert resources away from the urgent tasks of completing validations and making full payments”.

The PAC suggests that the Government should have introduced a trial system for the first year of the reform.

Times Recommends

• Margot Fonteyn: In her footsteps
• Forget beautiful people, let's have wonky Brits
• Fundamentalist brew: faith and power