THE region could benefit by hundreds of millions of pounds through a shake-up in the system of Government grants.

The Government will today set out a series of options on how nearly £40bn of future spending will be distributed to English councils.

Ministers have been looking to replace the much criticised Standard Spending Assessment system of grants to local authorities, which pay for the most key services, including education, social services, police and firefighters.

At present, grants are handed out on the basis of arbitrary "needs" factors such as population and geography.

But this has been attacked for not taking into account factors such as poverty and deprivation.

Local Government Minister Nick Raynsford publishes a Green Paper outlining the proposals this afternoon.

One option is expected to consider whether the grants system should be based on Gross Domestic Product (GDP) per head of population.

This could see a huge shift in resources away from better-off areas, such as London, to deprived regions, such as the North-East, which has one of the lowest GDPs in the country.

It could also mean reform "by the back door" of the out-dated Barnett Formula, under which Scotland benefits from £1bn in Government spending compared with the North-East.

Kevan Jones, MP for North Durham said: "I am looking forward to a fairer deal for the North-East.

"Under the present system based on population we lose out."

Last week, MPs heard of the support given to a GDP-based system by the head of a Government-funded review of regional spending.

Professor Iain McLean published research showing that the North-East gets £765 less per head of population than it would based on GDP. Londoners got £1,268 per head more, the report said.