Campaigners claim intense lobbying has watered down proposals that could save millions of pounds

A public watchdog backed down yesterday in its long-running battle to force Britain's £72bn food industry to adopt colour-coded warning labels, to the disappointment of campaigners who believe they would turn people off junk food.

The decision by the Food Standards Agency's board meeting in Cardiff was the first time the agency had dropped its insistence manufacturers use 'traffic light' colours as part of efforts to reduce obesity, heart disease and other diet-related illnesses. Instead, the FSA decided they could display two of the following three methods to indicate the healthiness of food: the colours red, amber and green; the words 'high', 'medium' or 'low'; or percentages of nutrients such as salt and fat.

For the FSA, the decision – which goes to the Health Secretary Andy Burnham for approval – represented an interim stage in an eventual transition to a unified labelling system. For manufacturers, it represented a victory in a vigorous behind-the-scenes campaign to avoid the placing of warning colours on junk food, which they feared would lower sales.

Campaigners said it would delay attempts to improve a poor national diet which has left one in four Britons obese and prematurely kills 70,000 a year at a cost to the health service of billions of pounds.

"We think this compromise is really going to let consumers down. People want to have a single labelling scheme," said Sue Davies, chief policy adviser at the consumer group Which?, which backs traffic lights along with the British Medical Association.

The decision was the latest twist in a six-year battle to agree a single labelling system for processed food, which has pitched public policy and science against PR and lobbying.

In 2004 the Government asked the FSA to come up with a front of pack labelling system and, after polling 2,600 people, the agency formally announced its intention to go ahead with traffic lights in March 2006. The scheme – which displayed red, amber or green colours for levels of four nutrients, fat, saturated fat, salt and sugar – was backed by Sainsbury's and other retailers.

A day before the announcement, Tesco, Morrisons and five big manufacturers – Kellogg's, Danone, Kraft, Nestlé and PepsiCo – announced they were backing a rival scheme, Guideline Daily Amounts (GDAs). It expresses fat, salt, sugar and calories in a serving as a proportion of an adult's recommended intake.

As well as using percentages which many adults find difficult, the GDA scheme allowed companies to use a monochrome display or different colours, meaning there were several versions of it on the shelves. They could set the servings on which the percentages were based, with, for instance, cereal makers Kellogg's having a serving of 40 grams and Nestle 30 grams.

Independent polls for Which? and the National Heart Forum found the public preferred traffic lights.

To put its case, the food industry hired a lobbying company, Hill & Knowlton, which engaged in a whirl of activity. Hill & Knowlton boasted on its website that meetings with No10, the FSA, the health select committee, and other parliamentarians had "resulted in a significant shift in attitudes among core government stakeholders." One FSA insider was quoted as saying Kellogg's had always been briefing ahead of it at party conferences: "They muddied the waters for us. Frontbench spokespeople told us they'd never experienced anything like it."

There was a lot at stake: adopting traffic lights would have made 75 per cent of breakfast cereals carry red waning labels. In explaining the industry's dislike of the scheme, Jane Holdsworth of the Food and Drink Federation said: "We think the GDA system is the best solution because it is based on fact and does not demonise foods."

The Government said it was "prepared to act" if the free for all did not work, but labelling is a common market issue in Europe, meaning Britain could not impose traffic lights. With discussions under way, manufacturers in the UK insisted on further research.

Eventually they agreed to the establishment of an independent panel to find the best scheme once and for all. Last May 2009 it found shoppers most liked the words, high, medium and low, followed by traffic lights and percentages.

There was no change in the industry's approach. The British Retail Consortium said there should be no rush towards a unified scheme, pointing out the European Union was coming forward with its own continent-wide labelling scheme.

The European Commission has expressed a preference for GDAs, after what is believed to have been sustained lobbying in Brussels.

At Which?, Sue Davies said: "There has been an awful lot of lobbying for various different schemes and the GDA system is one that the industry has promoted... What it ultimately comes down to is a fear of being transparent about what's in products."

Unhealthy nation: How the damage adds up

*Britain has among the worst nutrition and highest levels of obesity in Europe, according to the Food Standards Agency

*A quarter of adults and 10 per cent of children are classified as obese. Only four in 10 adults eat the recommended five portions of fresh fruit and vegetables each day

*The Cabinet Office says that diet-related ill-health costs the country around £6bn a year

*Meeting nutritional guidelines for all 60 million inhabitants would save 70,000 people from dying prematurely every year

*Adopting traffic lights would have made 75 per cent of breakfast cereals carry red warning labels

Lighting the way: The FSA's 'traffic light' scheme

This is how some branded foods would be labelled if their manufacturers took part in the Food Standards Agency's traffic light scheme. Colours show the level of four nutrients: fat, saturated fat, sugar and salt. Red denotes a high level, amber medium and green low.

Jordans Country Crisp

Calories:448 per 100g

FSA traffic light score

Amber – Fat 18.8g

Red – Sat Fat 5.5g

Red – Sugar 27.4g

Amber – Salt 0.6g

Fox's Butter Crunch Crinkles

Calories: 470 per 100g

FSA traffic light score

Amber – Fat 18.2g

Red – Sat Fat 9.5g

Red – Sugar 32.3g

Amber – Salt 1.5g

Danone Activia intensely creamy yogurt

Calories: 97 per 100g

FSA traffic light score

Green – Fat 3.0g

Amber – Sat Fat 1.9g

Red – Sugar 12.6g

Green – Salt 0.1g

Kellogg's Cornflakes

Calories: 372 per 100 grams

FSA traffic light score

Green – Fat 0.9g

Green – Sat Fat 0.2g

Amber – Sugar 8.0g

Red – Salt 1.8g

Heinz Baked Beans

Calories: 72 per 100 grams

FSA traffic light score

Green – Fat 0.2g

Green – Sat Fat Trace

Green – Sugar 4.8g

Amber – Salt 0.9g

McVitie's Hobnobs

Calories: 467 per 100 grams

FSA traffic light score

Red – Fat 21.7g per 100grams

Red – Saturated fat 9.5g

Red – Sugar 23.8g

Amber – Salt 1.0g