Food Standards Agency to be abolished - source

LONDON (Reuters) - The coalition government will abolish its food watchdog, set up to protect consumers after the "mad cow" disease crisis, and reassign its duties elsewhere, a government source said on Sunday.

The cost-saving move will fulfill a pre-election pledge by Health Secretary Andrew Lansley to strip the Food Standards Agency (FSA) of its responsibilities for nutrition and diet advice.

But it is likely to fuel criticism that Lansley is bowing to the food industry, which has opposed the agency's approach of using "traffic light" colours for food labelling.

The agency, which employs 2,000 staff and spends 135 million pounds ($205 million) a year, is also in charge of safety and hygiene in the food chain and those duties will be devolved to the Department for Environment, Food and Rural Affairs (Defra).

"The functions of the FSA will be subsumed into the Department of Health and Defra," the source told Reuters.

The Conservative-Liberal Democrat coalition, in power since May, is looking for deep cuts across the government to reduce a budget deficit of 156 billion pounds, although it has promised to protect health spending.

Lansley said Sunday he was seeking nearly 190 million pounds a year in savings from independent agencies or "arms-length bodies" to spend elsewhere in the state-funded National Health Service (NHS), on top of an 850 million pound squeeze on management costs.

On Monday, Lansley will unveil a radical shake-up of the NHS, with family doctors taking over responsibility for more than 80 billion pounds of spending from local health authorities.

A Department of Health spokesman said no decision had been made over the FSA. "All arms-length bodies will be subject to a review," he said.

The FSA was founded by the Labour government in 2000 in the aftermath of the crisis that rocked Britain's beef industry and damaged the public's confidence in food safety.

Lansley has been critical of the agency's promotion of traffic-light food labelling to tackle rising levels of obesity, saying its approach was counter-productive.

The opposition Labour party says Lansley is caving into pressure from the food industry that opposes the red-amber-green labels that show the relative amounts of salt, sugar and fats.

Britain's biggest retailer Tesco Plc has resisted the program although it has been adopted by some high-street rivals, including J Sainsbury Plc and Marks and Spencer Group PLC.

Last month, the European Parliament rejected the mandatory use of traffic-light food labelling while insisting that nutritional content should be clearly shown.

(Editing by Jeffrey Benkoe)