Lord Owen decided to allocate the money
Lord Owen, Secretary of State for Health in 1975, claimed the Department of Health failed to spend money allocated to stop the import of blood and blood products from abroad.
Instead, the imports, particularly from the US, and including those tainted by HIV or hepatitis, continued - without his knowledge, he said.
He told BBC Radio 4's "Face the Facts" programme: "There is no doubt we should have been made self-sufficient, and had we been made self-sufficient, a lot less people would be suffering from these viruses and illnesses now."
Lord Owen called on the government to increase the compensation offered to those left with life-threatening infections by the blood products.
Haemophiliacs lack an ingredient of blood - called factor 8 - which helps clots to form, meaning that, when injured, they bleed heavily.
Factor 8 taken from donated blood is given to haemophiliacs.
Lord Owen part of Labour premier James Callaghan's cabinet, took the decision in 1975 to cut out the theoretical threat this posed.
He said: "I decided that if we invested enough, we could become self-sufficient so our blood would come only from British sources, and we felt we would then be able to be more confident that it would not have contaminated blood in it."
Several million pounds were allocated - which the minister announced in the House of Commons - but the initiative did not follow.
'Unproven danger'
In the 1980s, news of haemophiliacs falling prey to HIV made the former minister realise this.
He said: "I was very upset that the decision I'd taken in 1975 had not been fulfilled.
"There was resistance at the Department of Health at the time to putting in the money.
"I think some people felt this was an unproven danger, that we were putting money in without knowing what the viruses were, but then prevention is everything in health."
Approximately 800 haemophiliacs have died of HIV - thousands more face an uncertain future after contracting hepatitis C.
The government has paid some compensation to those affected by HIV.
Face the Facts will be broadcast on BBC Radio 4 at 1230 BST on Friday, and again on Sunday at 2100 BST.