Britain is still at risk of a foot and mouth outbreak, parliament's spending watchdog has warned.

A National Audit Office report released on Wednesday found that the Department for Environment, Food and Rural Affairs (Defra) is making good progress in improving its readiness to deal with any future epidemic.

But the investigation concluded that more needs to be done to involve local authorities in planning and to improve the ministry's IT capability.

"Foot and mouth disease is still common in many areas of the world and high levels of international trade and travel mean that another outbreak is possible at any time," it found.

And with several compensation payments to farmers affected by the 2001 outbreak of the disease remaining outstanding, including some pending legal action, the report called for a clearer system of reparations to be put in place before the agricultural industry is hit again.

The 2001 epidemic sparked panic in the countryside and exposed the former Ministry of Agriculture Fisheries and Food's (MAFF) inadequate contingency plans, a series of subsequent inquiries found.

The NAO, along with its sister public accounts committee of MPs, set down a range of lessons to be learned by Defra, which replaced MAFF in the wake of the outbreak.

Readiness

The latest progress report found that the department has improved its readiness for any re-entry of the virus into circulation by putting stricter controls into place, improving veterinary standby systems and negotiating deals to purchase large quantities of vaccines if required.

However the NAO also found that Defra has not yet done enough to involve councils, which would be crucial in delivering on-the-ground responses, in contingency planning or put in place adequate information systems, which were found to be insufficient four years ago.

It also warned that compensation issues are still not resolved, with 57 cases from 2001 still outstanding, nine of which are in the High Court.

Neither could the government reach agreement with the European Commission on levels of repayments to be made to farmers who had their cattle slaughtered in the bid to control the spread of the disease.

Brussels officials disputed Britain's assessment of how much assistance the EU should provide, leaving the taxpayer to foot an extra £600 million of the £1.3 billion compensation bill.

Auditor general Sir John Bourn said the government must put in place a clearer system before it is required to be used again.

"The 2001 outbreak of foot and mouth disease was devastating not only for many farmers but also for the wider rural community," he said. "Continued vigilance is therefore essential.

"Defra is now much better prepared than in 2001, but still has work to complete, for example to develop a new compensation system for culled animals; to determine how the costs of controlling future livestock disease outbreaks should be borne; to link its central government contingency plans with those of local agencies; and to update information technology support for future disease outbreaks."