DOWNING Street moved last night to damp down suggestions that the Government is rethinking the controversial spending formula which favours Scotland over the North-East.

After a day of confusing signals from Westminster, the message from Number 10 underlined an apparent split between Prime Minister Tony Blair and his Deputy John Prescott over future funding for the region.

The row focuses on the Barnett Formula, which sees Scotland receive £1bn more public funding than the North-East.

Mr Prescott, in what was widely interpreted to be the broadest hint yet that the controversial funding formula could be scrapped, suggested that it was time for the Government to bite the bullet on the issue.

"We need to get a timetable for it to be settled as quickly as we can," he said. "This will have to be done quickly, because it is not the sort of row you want in the election period."

However, the Prime Minister's spokesman said there were no plans to change the Barnett formula.

"What John Prescott was talking about was the current review of local government finance."

Chancellor Gordon Brown yesterday confirmed that Government spending plans were fixed until 2003/4.

However, the Government has promised a Green Paper on regional government and funding "within weeks" of a General Election - now expected on June 7.

Mr Prescott is understood to be pressing for a Bill in the next Queen's Speech to allow referendums on local devolution, following the pattern which led to the Scottish Parliament after the 1997 election.

Lord Barnett - who devised the funding formula in the 1970s - doubted the Government was about to announce any imminent changes.

"I hope they are, but I doubt it," he said. "However, I very much believe there is a huge case for change to help regions like the North-East."