The Barnett funding formula must be changed, or it is in danger of causing a rift between the four nations of the UK, a think-tank has claimed.

According to the latest report by IPPR north, the formula is no longer ‘fair or equitable' and it could lead to tensions between England and the devolved nations.

The report, Fair shares: Barnett and the politics of public expenditure, points out that the scheme is no longer supported by Lord Barnett, and the media and the public increasingly believe it is unfair.

IPPR north senior research fellow, Guy Lodge, said: ‘The Barnett formula is no longer fit for purpose. It does not result in a fair distribution of spending, and is becoming an increasing source of tension between the nations of the UK.'

Mr Lodge, author of the report, added: ‘Failure to act now and address devolved funding could see this tension grow.'

The report suggests three options for reform:

The report also claims Scotland should build on its ‘Tartan tax' with extended powers over income tax, and possibly a proportion of VAT, topped up with grant based on needs assessment. A similar scheme is recommended for Northern Ireland.

In Wales, the report recommends full funding from block-based grant with the possibility of assigning some tax revenue.