Problems with the Rural Payments Agency Single Payments System (SPS) are a 'masterclass in failure' that could cost the taxpayer £500m, according to an influential parliamentary committee.

The scheme for handling farm subsidies was introduced in 2005 in response to changes in the European Common Agricultural Policy. But the system was beset with difficulties: costs shot up by an estimated £20m and only 15 per cent of eligible claimants had been paid by March the following year.

The Department for Environment, Food and Rural Affairs (Defra) is largely to blame for a timetable that left insufficient time for ensuring IT components were compatible, says the Public Accounts Committee (PAC) report published today.

'The SPS is relatively small, but its implementation to a near-impossible timetable was a master class in bad decision-making, poor planning, incomplete testing of IT systems, confused lines of responsibility, scant objective management information and a failure by the management team to face up to the unfolding crisis,' said PAC chairman Edward Leigh.

Not only did the resultant delays cause problems for individual farmers, but the taxpayer has been left to pay the bill, said Leigh.

'The delays in paying grants to farmers left a significant minority stressed and in a financially precarious position. And the taxpayer has taken a large hit – with a potential additional liability approaching half a billion pounds,' he said.

Government spending watchdog the National Audit Office criticized the programme in October 2006 for progressing despite receiving repeated 'red light' warnings in the internal Gateway project monitoring process.