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11:15 - 03 February 2004

The Government has admitted for the first time that the UK will lose millions of pounds of funding from Europe because of its botched handling of the 2001 foot and mouth disaster.

Speaking in the Lords, the Farms Minister Lord Whitty acknowledged that the European Commission would not pay in full a £1.6 billion compensation claim lodged by the Government to help cover the cost of the crisis.

The WMN revealed last year that the Commission planned to withhold up to half the claim - around £800 million - because of concerns about the way the disaster was handled. Under EU law the UK would normally expect to be entitled to the cash, equivalent to 60 per cent of the money paid out during the crisis.

But Brussels sources say the Commission is deeply concerned about the way costs spiralled out of control in the crisis. The Commission is also said to be unhappy about the controversial contiguous cull policy, under which millions of healthy animals were slaughtered.

Defra has previously insisted that it was pressing for payment of the claim in full. But Lord Whitty has now acknowledged that compensation from Europe will fall short of the Government's claim. He said the final sum was not yet known as negotiations were still underway, but he acknowledged that the claim would only be met "in part".

He said: "It is certainly the case that our original expectations in relation to the amount that the EU would pay are not likely to be met."

Lord Whitty would not be drawn on the reasons why but confirmation that large sums of money are to be withheld will spark fresh calls for a public inquiry into the disaster.

Tim Jones, chairman of the Devon and Cornwall Business Council and a member of the Government's Rural Task Force at the height of the crisis, said that many questions remained unanswered.

Mr Jones said: "I think we are seeing the start of a damage limitation exercise by ministers, but we are not going to let this go. The indications are that a massive amount of money will be withheld and that has huge implications for the way things were handled. We will certainly be calling for an inquiry if money is withheld in this way."

Lord Whitty denied that difficulties with Europe led to the Government contesting £50 million of sub-contractor invoices.