THE Government faced a North-East rebellion last night over calls for a fairer funding formula to help the region.

Regional MPs are demanding changes to the Barnett Formula, which channels extra cash into Scotland at the expense of needy English areas.

During a Commons debate yesterday Treasury Minister Paul Boateng faced calls for urgent changes.

Redcar MP Vera Baird said the North-East remained firmly at the bottom of almost every national economic league, despite considerable Government efforts.

"Isn't it time to kick-start our region's economy by relocating at least one Government agency or department out of overheated London, to our lovely region - they would be very welcome in Redcar." she said.

Mr Boateng replied: "I am sure that those who have direct responsibility for the location of Government offices will hear what you say.

"We are taking action to reduce imbalances within and between regions - particularly yours."

That was why, he said, the Regional Development Agency OneNorth-East was getting an increase from £227m this year to £240m in 2005/6.

"It will help address the problem you have rightly emphasised," added the minister.

Central Newcastle MP Jim Cousins called for the North-East to get special treatment over public spending, in the same way as Scotland and Wales.

"For over a hundred years they have had special arrangements reflecting their special needs - and quite right too," he said.

"And they have the ability to make local and national priorities within their spending allocations of things that the people of those areas thought were right to focus on.

''When can the North-East region expect to have similar arrangements?''

Mr Boateng said the MP had made clear his passion for regional government, and would welcome Deputy Prime Minister John Prescott's proposals on regional elected assemblies.