The delays in delivering the single farm payment scheme left English farmers with a bill of between £18 million and £22.5 million, a new report warns.
The National Audit Office (NAO) today condemns the "unacceptable delay" in delivering European agricultural payments, caused by a catalogue of management errors.
One fifth of farmers told the watchdog that the delays had caused them distress and anxiety, and they paid out a total of up to £22.5 million in charges and interest on bank loans to tide them over until the payments came in.
There were also significant costs to the taxpayer - the single payment scheme was budgeted to cost £76 million but this rose to £122 million by March this year and is set to increase further.
The scheme was introduced as a simpler way to deliver subsidies, but became a bureaucratic nightmare. The body responsible, the Rural Payments Agency (RPA) intended to make 97 per cent of payments by March, but only managed 27 per cent.
By June 2006, 95 per cent of claimants had been paid - but today's report warns the RPA must take action to ensure that the problems that led to last year's delays are not repeated when this year's payments are due.
Auditor general John Bourn said the RPA underestimated the effort involved in processing claims, did not properly test out its IT system before the scheme was introduced and failed to have proper fall-back plans in place.
The agency's chief executive - who has since been replaced - was "unduly optimistic" in his progress reports, the NAO says. As such, the RPA did not turn to its contingency plans until this April - months after the first signs of trouble began appearing.
Even now, the agency is facing fines of up to £131 million from the European Commission for errors made in single farm payments. Of the 363 claims tested by the watchdog, 34 were overpaid and 79 were underpaid.
"Unpicking what has gone wrong will take some time. Foremost among the agency's priorities now must be to determine if the administrative and computer systems for mapping land and processing claims are really up to the job," Mr Bourn said.
"Until that happens, there is little prospect the problems will be remedied in time to deal with the 2006 claims."
National Farmers' Union (NFU) general secretary Peter Kendall repeated this concern, saying: "If ministers take the same 'wait and see' approach this year in the vain hope of being able to make full payments some time in the spring, we will end up in the same mess again."
He added: "With Irish and French farmers benefiting from advance payments ahead of the payment window and Scotland and Wales set to begin payments from December 1st, it looks like English farmers will be left out in the cold once again."
A spokesman for the Department for Environment, Food and Rural Affairs (Defra) said it was "fully aware that the significant problems at the RPA have seriously affected farmers", and stressed it was tackling the backlog of work and improving the IT systems.