'Misuse' of Brussels cash may cost £1bn

Some 398m of so-called "financial corrections" have already been imposed by the European Commission and the Treasury has set aside another 601m to cover further penalties.

The money is stopped when the Commission feels that countries have failed to meet its rules and regulations on the allocation of cash. Most of the problems relate to agricultural payments.

The figures were highlighted by the National Audit Office in a report published yesterday on Britain's use of EU funds.

Auditor general Amyas Morse has qualified his opinion of the 2008/9 accounts, saying there was "a number of significant accounting and other issues" which the Government needed to address.

"The confirmed losses totalling 398m set out in this report and the provisions for further losses of 601m ... represent huge past costs and potential future costs to the taxpayer of implementing EU schemes in the UK," Mr Morse said.

The fines cited by the NAO relate to failings before March 2009 but go back several years.

In 2008/9 fines worth 137m "crystallised", followed by another 261m since then. Mr Morse said the "irregular" payments meant he had to qualify his verdict on the accounts.

Provisions have been made for a further 601 million of financial corrections, although Treasury sources stressed that departments were working to get that figure down.

Most of the fines related to EU agricultural funds allocated by the Department for Environment, Food and Rural Affairs (Defra).

The NAO has already qualified Defra's 2008/9 and 2009/10 accounts for this reason.

Economic Secretary to the Treasury Justine Greening said the coalition Government was seeking to improve "financial discipline" in the use of EU funds in the UK.