Under plans being finalised last night by Nick Brown, Minister of Agriculture, all farmers will have their food production subsidies reduced to provide extra cash for rural development and schemes to protect wildlife and the rural landscape. Thousands of hill farmers, who have suffered an average 35 per cent slump in incomes this year, could benefit most from the changes over a number of years.

 But it is understood that ministers have rejected plans for early retirement payments for older farmers. The National Farmers' Union of England and Wales said yesterday that it was "outraged" by other Government plans to reform the way subsidies are paid to hill farmers. Subsidies are based mainly on numbers of sheep and cattle owned by individual producers. In future it will be area based according to a complicated formula which has yet to be finalised.

 The move would also change drastically the way farmers receive cash aid from the taxpayer. It would provide at least £100 million a year in rural subsidies in line with the EU's Agenda 2000 farm reform measures agreed earlier this year. These aim to discourage surplus food production while providing a boost for ailing rural economies. The Government has to submit its own proposals to Brussels by the end of this month.

 Over seven or eight years starting in 2001, rural areas are expected to benefit by about £1 billion - provided losses in direct payments to farmers do not eat into that sum. Critics say that the net benefit will be far less. The arrangements are also designed to tie in with World Trade Organisation negotiations aimed at removing subsidies which create artificial trade barriers for food.

 The plans represent a personal success for Mr Brown, who has won a battle to persuade the Treasury to match pound for pound any cash aid available from Europe for rural development aid. He persuaded Gordon Brown, the Chancellor, late last week that the broader-based support scheme was the best way forward.

 The farm minister made clear that Britain would lose out if the EU schemes were not implemented fully. He has made it clear that farm subsidies should concentrate more on rewarding farmers for "goods" provided for the public benefit. Farmers would be encouraged to protect landscapes, encourage better public access and conserve wildlife. He also wants farmers to be seen as a key part of the rural economy rather than as its sole driving force.

 Tim Bennett, deputy president of the National Farmers' Union of England and Wales, claimed yesterday that hill farmers would lose out heavily. "In their current form we already know that the Government's hill farming proposals offer nowhere near the level of support needed," he said. The NFU wanted a simpler scheme where farmers received a set production subsidy and had environmental aid "bolted on".