The system of fixed compensation for livestock slaughtered to control foot-and-mouth disease was abolished last night after the Government admitted the scheme had inflated the cost of reimbursing farmers.
Elliot Morley, the Minister for Rural Affairs, said the tariffs had increased valuations by creating an artificial minimum price for livestock.
The concern, first revealed in The Independent last week, comes after the launch of two separate inquiries, by ministers and by the National Audit Office, into the handling of the epidemic.
The Chancellor, Gordon Brown, and the Secretary of State for Rural Affairs, Margaret Beckett, have been alarmed that a lack of financial scrutiny has added millions to the Government's bill for compensation, currently standing at £870 million and rising.
However the practice of using independent local livestock valuers, which has led to allegations of collusion with farmers to inflate prices, will continue.
The valuers are paid one per cent commission of every valuation they carry out on the Government's behalf, with a minimum fee for a day's work of £500 and a maximum of £1,500.
Under the tariff scheme introduced in March, farmers have been able to speed up the process of slaughter by waiving their right to an independent livestock valuation and opting for compensation at a standard rate.
But the payments were often far higher than the market rate for livestock, creating an artificial "floor" to the market which pushed up prices.
Yesterday the Department of the Environment, Food and Rural Affairs defended the policy, saying it had been essential to hit targets for slaughter when new outbreaks were being discovered at the rate of 40 a day.
A spokesman for the department admitted that payments had been "generous" and acknowledged that the system had inflated prices.
But the spokesman insisted that the change was not linked to allegations of collusion. The tariff was now being abolished because of the reduced daily toll of new cases, he said.
Rates varied from £32 to £150 for sheep, £18 to £520 for pigs and £500 to £1,100 for cattle.
Mr Morley said: "The rates were set generously at a time when new cases were being reported at an average of 40 a day to encourage farmers to come forward and speed up the cull.
"In the event less than ten per cent of farmers used this facility and the rate had the effect of putting in place minimum prices which is not normal practice in the livestock sector."
The National Farmers' Union criticised the decision.
Tim Bennett, deputy president of the NFU, said: "Every farmer should be treated equally and no-one placed in a disadvantaged position when they go to bid for replacement livestock.
"There are still up to 42,000 animals being slaughtered every week so it remains crucial that the valuation process is carried out quickly ."
He added: "The NFU's priority remains the eradication of foot-and-mouth disease."Reuse content