Farmers are still receiving incorrect subsidy payments despite major IT investment to correct the flaws, according to a report from the Public Accounts Committee.

The Single Payments Scheme was set up by the Rural Payments Agency in 2005 to distribute EU agricultural subsidies to farmers more efficiently.

But faults in the IT system led to overpayments to farmers totaling £20m in 2005 and £17.4m in 2006, despite significant efforts to rectify the problem.

The failings have already added £50m to the £250m cost of the agency's business change project through which the scheme was implemented.

And there is still work to be done, according to Edward Leigh, chairman of the Public Accounts Committee.

"Restoring farmers' confidence will depend on the agency improving its business processes and IT systems to the point where it can process claims efficiently and promptly and tell farmers when they are likely to be paid," he said.

The Rural Payments Agency’s failings could also lead to hundreds of millions of pounds of fines from the European Commission, said the report.

Early policy papers did not highlight the risks of the scheme against such tight deadlines, said Leigh.

"Defra should check its processes for examining and challenging the assumptions in its policy proposals," he said.

The agency is still not able to offer adequate advice to farmers on the progress of their claim, said the report.

It was reluctant to specify targets by when such information would be available and when payments would be made under the 2008 scheme.