Brussels will cancel aid if fraud is proved

Taxpayers may foot bill for £500m as farmers accuse critics of scaremongering

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Vaccination 'would have been £3bn cheaper'

Furious Welsh farmers turn on whistleblower

The European Union is threatening to withdraw hundreds of millions of pounds in aid from the UK over allegations of fraudulent foot and mouth compensation claims.

Up to 60 per cent of the British taxpayers' £2bn bill for the foot and mouth epidemic is being paid for by Brussels – thanks to a little-known European Council directive on foot and mouth disease dating back to 1990.

But an EU spokesman has told the Independent on Sunday it will now conduct its own fraud investigation.

The Government sent the EU its first bill at the end of June. It came to 800 million euros (£500m), covering farmers' compensation and farm clean-up costs. This will now come under intense scrutiny along with several more payment demands that are due to follow.

The bill will be paid "soon", said an EU official, but it will demand the sum back if fraud is detected.

"The European Commission is pledged to do its own checks for fraud," said Thorsten Muench, the EU's consumer protection spokesman, adding: "We will ask for money back if fraud has been committed. After all, it is European taxpayers' money."

The matter of EU aid has become an open secret in Whitehall but received little public attention. If the EU begins to ask for its money back, that could leave the Government seriously out of pocket.

A spokeswoman for the Department for Environment, Food and Rural Affairs said she was unable to comment: "I have not been able to get any answers [from officials]."

British ministers are convinced a series of "scams" and "abuses of the system" have massively escalated the cost of the foot and mouth epidemic. The Government began a series of measures over the past week to curb suspected fraud amid alarm over both the spiralling cost of the slaughtered animal compensation bill – now close to £1bn – and the cost of cleansing and disinfecting farms, which is expected to top £800m.

The cleansing and disinfecting operation was halted last week but resumed yesterday with a view to reducing the average clean-up cost on an English farm from £100,000 to £36,000.

Private contractors who overcharged for cleaning up farms may now be asked to hand back money to the Government. If the Government cannot get its money back from them, it risks losing handouts from the EU.

Yesterday a further cull of sheep in the Brecon Beacons began, confirming fears that the disease has spread uncontrollably in the Welsh mountain range. The Welsh Assembly said that a further 1,300 sheep would be culled, bringing the total slaughtered in the area to 6,500 in the past eight days.