Treasury minister John Healey has accused Tory MP Oliver Letwin of making a “huge blunder” in his proposals for £500 million cuts in the Defra budget.

The biggest element of the proposed £500 million cuts - £210m - would, Letwin claims - come from “outsourcing the cash handling services of the Rural Payment Agency”. This, argues Healey, would be illegal under EU law because the EU council regulation requires CAP-payment agencies to be “authorities or bodies of the member states”. Yet, he added, Letwin provides no explanation of how this would be changed so he cannot make these savings.

“He claims he would save £47m from the Environment Agency,” said a Treasury statement. “The only proposals are to cut the Environmental Protection division. Yet the division is funded by the industry and so there would be no savings to the taxpayer.

“Third, he says he would save £64m from cutting the Food Standards Agency. He says this would be achieved by “ending public relations and advertising and merging it with the Meat Hygiene Service, saving £64 million”. The Meat hygiene Service is already part of the FSA so cannot be merged with it. £64 million represents almost half the FSA’s £139m budget, yet the FSA spent just £500,000 on advertising last year.”

Finally, Healey took exception to Letwin’s statement that: “There are more Defra bureaucrats (14,460) than there are dairy farms in England (14,300)”. Healey countered: “Defra deals with all sorts of farms - not just dairy farms - and there are in fact 190,687 farms in England. What’s more, Defra deals with a much wider range of functions than just farming including, for example, the food industry, waste, pollution, rural affairs and fishing.”

Labour’s Healey said: “Oliver Letwin has scored a massive own goal. He cannot make these savings and his sums do not add up. They are making up more dodgy figures about the government to mask their own plans for cuts, charges and privatisation.

“We’re making real savings a the centre so we can invest public services. They are committed to cutting and privatising vital public services like defence, the police, our NHS and our schools.”

His colleague Alun Michael MP said: “Defra’s efficiency programme is among the toughest in Whitehall. The Tories’ proposals are uninformed and potentially disastrous. The Tories proposals to cut the Environment Agency, English Nature and other vital parts of Defra’s programme would be bad news for the environment, the countryside and the quality of life in Britain.”

The labour statement added: “Defra is committed to a reduction of 2,400 civil service posts by 2007-08. Through new IT and the introduction of the Single Farm Payment, RPA running costs will be cut by £40m with an additional £12m savings from within Defra.

In addition to the £52m savings from the RPA other Defra efficiencies include:

• £13m from modernizing rural delivery functions;

• £30m from England Rural Development Programme IT;

• £73m from the Environment Agency Efficiency Programme;

• £18m from back-office functions;

• £33m through improved procurement;

• £66m from streamlining policy-making.