The government was last night urged to compensate 130 workers who are due to be laid off today after the bird flu outbreak in East Anglia and the consequent 40% slump in turkey sales.

The Bernard Matthews employees will be stood down for 20 days from the firm's processing plant at Great Witchingham in Norfolk but union officials warned the food company was preparing to lay off as many as 500 people if turkey sales slumped further.

David Miliband, Environment Secretary, made no mention of the lay-offs as he updated MPs on the outbreak in early February of the H5N1 virus at the Bernard Matthews turkey farm in Suffolk, all of whose 159,000 turkeys were slaughtered.

Officials from the Transport and General Workers' Union pointed out that governments in Spain and Italy gave their industries financial help after such outbreaks.

Chris Kaufman, TGWU spokesman, said: "There is European precedent for direct government support for workers whose jobs have been affected by outbreaks and the UK government should act in the same way as the Spanish and Italian governments did in similar circumstances.

"The industry will need the full backing of its government as it faces a challenging period. The government should also assist the workforce by ensuring that the benefits they are entitled to are processed without delay."

The 130 workers will receive a one-off payment of £100 each from the company as well as some statutory payments.

In a statement, a spokesman for Bernard Matthews said the company had met the union to "discuss the impact of the H5N1 outbreak and the continuing uncertainty that has resulted in the subsequent reduction in the company's sales".

He explained how sales had dropped by 40% and as a result the company "regrettably" proposed to lay off 130 employees.

"It was also confirmed that, dependent upon future sales, further lay-offs of between 400-500 employees could not be ruled out.

"This was a very difficult decision to make but in the current circumstances it was the only option available following the drop in sales. We are also doing everything we can to limit the number of job losses and we are working hard to restore consumer confidence."

He added: "The TGWU agreed to the lay-off proposal and both parties will review the situation regularly."

In a Commons statement, Mr Miliband said the government inquiry remained focused on links between Hungary and the Suffolk farm.

He said the earliest time at which bird flu restriction zones in Suffolk could be lifted was the second week of March, provided there were no further outbreaks or suspect cases.

Peter Ainsworth for the Tories asked: "Will the taxpayer have to foot a bill compensating Bernard Matthews?"

Mr Miliband replied: "No compensation has yet been paid in this case and we want to go through all aspects of our investigation before that question is addressed."