Scotland's parliament and government have been hoodwinked into giving farmers an extra £40 million of taxpayers' money this year, despite advice from officials that it would be "gross over-compensation".
A dossier of internal emails and memos from the former Scottish Executive reveals that the then LibDem rural development minister, Ross Finnie, misled MSPs and fellow ministers over the payment. The European Commission was kept in the dark and rules were bent to ensure that farmers received the money in the run-up to the election in May.
The £40 million pay-out is regarded as "absolutely scandalous" by insiders. It triggered a private pre-election row between Finnie and the then Labour Finance Minister, Tom McCabe, and resulted in the retrospective doctoring of a government news release.
Opposition MSPs are this weekend demanding investigations into exactly where the money came from. And McCabe said that he had been "extremely concerned" that the payment to farmers was "disproportionate".
The dossier also sheds an unprecedented light on decision-making within the Scottish Executive, and raises questions about the whole process of government. It betrays the extraordinary influence that the National Farmers' Union in Scotland (NFUS) can exert on ministers and officials.
The untold story of how the NFUS managed to win a £40 million bonus in the months before the 2007 Scottish election is exposed in 100 documents obtained by the Sunday Herald. The government wanted to keep the documents secret but was forced to release them by the information watchdog, Kevin Dunion.
Although the £40 million pay-out predates the Scottish Nationalist government and its recent arguments with Westminster about compensation for foot and mouth disease, the aftershocks are still reverberating. Current ministers have been deprived of money they could have used now to help bridge major funding gaps in their first budget, due later this month.
Richard Lochhead, the Cabinet Rural Affairs Secretary, has just invited 13,000 farmers to apply before 16 November for £61 million worth of subsidies. If Finnie's claim that the cash was not additional money was correct, only £21m would have now been handed out because of the £40m already paid out.
Finnie told farmers, the Scottish Parliament's Environment and Rural Development Committee and Finance Minister McCabe that the £40 million was "not additional". But the dossier makes clear that it was extra money from within the Executive's budget, and that the amount was far in excess of what officials thought was reasonable.
The news release announcing the pay-out in January this year was altered by Finnie to include the phrase "the £40 million is not additional". But after the NFUS complained that this was inaccurate, the phrase was deleted from the release posted on the Executive's website.
On Friday Finnie strongly denied that the £40 million had been a "pre-election bribe" for farmers to help elect Liberal Democrats in rural constituencies. "That was not in my brain anywhere," he told the Sunday Herald.
He maintained that the £40 million was not additional because it covered a gap in funding caused by an eight-month delay in paying out grants under European regulations. "I was concerned to smooth out that payment gap," he said.
"Month by month the amount that was actually paid out to farmers didn't change," added Finnie, now the LIbDem health spokesman. "I thought what we were doing was making an advance payment."
But Labour's Shadow Cabinet Secretary for Rural Affairs, Sarah Boyack, believes that she was misled by Finnie when she was convenor of the rural development committee. "I am deeply disappointed that the answer given to me as committee convenor does not appear to have been the correct position," she said.
"I will be laying parliamentary questions to the Cabinet Secretary for clarification on this matter, in particular to ascertain where in the budget this money came from."
The Green MSP Robin Harper said: "It seems very unclear what's happened with this public money, and an investigation by Audit Scotland is required to find out who's right and to establish whether this money has been properly allocated."
According to the NFUS, an extra payment to farmers was necessary to bridge the eight-month delay in 2007 payments. The Executive offered £40 million "which we were clear was a supplementary payment", said the union's deputy chief executive, James Withers.
"It was up to ministers how they presented that to parliament. We were just relieved that a potential financial crisis in the hills had been averted."
The £40 million payment was made under the Less Favoured Area Support Scheme (LFASS), which mainly helps hill farmers in Scotland. "Under the old system the last payment was made in May 2006 and the next payment under the new system was not going to be paid until January 2008," said a spokeswoman for the Scottish government.
"The one-off funding payment of £40 million issued under LFASS in January 2007 was because the cycle of payments had shifted permanently by eight months."Read the inside story of the £40 million scandal here.