THE Government is poised to redraw the funding formula which has created a massive divide between the North-East and Scotland.

Public spending is now more than £1bn higher in Scotland than the North-East as a result of the controversial Barnett funding formula.

Drawn up in 1978 to help the least well off parts of Scotland and Wales, critics say the formula has outlived its usefulness.

Scotland stills receives almost £750 per head more than the North-East even though it has long since outstripped the region in terms of output and prosperity.

Despite consistent calls from The Northern Echo and pressure from North-East MPs, the Government has steadfastly refused to re-examine the formula - until now.

Last night, however, sources at the Department of Trade and Industry said that officials were drawing up proposals for changes to the formula, which was introduced by Joel Barnett, then Labour's Chief Treasury Secretary.

Although the Government has ruled out making any changes during the current Parliament, they could well be made after the next election, especially as legislation is expected to be introduced in relation to regional governments.

News that the formula could be changed was welcomed yesterday by business leaders and politicians in the region.

Fraser Kemp, MP for Houghton and Washington East, has been a long time campaigner for changes to the formula.

He said: "I think it is only right that any Government should continually re-assess spending priorities.

"Clearly, a formula which was devised a quarter of a century ago is no longer relevant. If it is going to be changed then that has to be good news for the North-East."

Bill Midgley, vice-chairman of the North-East Regional Assembly, said: "There is nothing wrong with the principle of the Barnett formula, but it is its application which is out of balance.

"Scotland's economy is much stronger than the North-East and it needs to be revised to give our region a greater share.

"The North-East is at the wrong end of the economic and social indicators and should get more money to tackle problems in unemployment, health, educational attainment and business failure rate."

Mr Midgley's views have been echoed by John Bridge, chairman of the regional development agency, One NorthEast.

"The Barnett formula did the job at the time in terms of supporting the economic and social recovery in Scotland, but these are now very different times," he said.

"The North-East is the region with the greatest economic and social need in the United Kingdom and there needs to be a fairer distribution of public resources."

Public spending in Scotland amounts to £5,270 per head, compared with £4,525 in the North-East.

Liberal Democrat leader Charles Kennedy has been one of the highest profile politicians to suggest the Barnett Formula be replaced, but the Government is believed to have been concerned that any changes during the current Parliament could have been a potential vote loser in Scotland.

A Treasury spokesman said: "The Government has made it clear that there are no plans to review the Barnett Formula during this Parliament.

"But there could be legislation introduced in the next Parliament in regard to regional government and that would have to take into account spending and funding for the regions."