THE man behind the financial formula that results in Scotland getting £1,600 more per head than England yesterday warned it could result in the break-up of the UK.
Lord Barnett told a new investigation into his 30-year-old formula for distributing government expenditure that it was dangerous and unfair.
He said the system had created a situation where an "astute politician" at Holyrood could use Scotland's extra cash to adopt policies such as scrapping prescription charges or student fees – which the SNP has done – and create jealousy and resentment among English voters.
He suggested this could encourage people in Berwick and Manchester to believe that life was better in Scotland.
Lord Barnett, who devised the formula that has taken his name while he was Chief Secretary to the Treasury in the Wilson and Callaghan governments of 1974-9, said he had pressed for a Lords' investigation because of the disparity in funding between nations.
He told fellow peers yesterday: "I was worried that the formula will so upset people in England that they will demand a separation which, in my view, will be hugely damaging, as I have no wish to see the UK split into three separate countries.
"I thought it didn't seem fair and therefore should be reviewed, with a view to seeing what changes were needed and what these changes should be."
Lord Barnett said the formula, which is loosely based on population to grant Scotland 10 per cent of any increase (or decrease) in government spending in England, had seen the funding gap increase from 1,100 per head in 2002-3 to 1,600 in 2007-8.
He said the reason the formula had survived for 30 years was that "nobody wanted to change it for fear of upsetting the electors in those areas". He said it was only ever intended as a "short-term measure" and described it as a "purely simplistic method of allocating expenditure".
But he denied it was linked to the rise in SNP support in the late 1970s or proposals for a Scottish Assembly.
Asked if it was successful, he said: "Successive governments over 30 years have kept it going. I don't think it's successful. I don't think it's fair. It can't be fair with this kind of gap."
He said: "There is a risk, if something isn't done … the people of England will get more and more upset and demand the very things they can get in Scotland."
Lord Barnett told the House of Lords Select Committee, whose members include former Scottish Secretaries Michael Forsyth and Ian Lang, that his system was only intended to to help him avoid battles with Cabinet colleagues seeking extra money for their areas.
He said it only came to be regarded as a "formula" after the Thatcher and Major governments kept it in place. He said: "I thought it might last a year or two before the government decided to change it."
Lord Barnett sidestepped a query on whether the formula was appropriate as a means of determining funding for devolved administrations, saying: "That is a big, big question."
THE Barnett formula defines the share of extra spending approved by Whitehall.
It is loosely based on population and means that 85 per cent of extra spending goes to England, 10 per cent to Scotland and 5 per cent to Wales. Northern Ireland has always been classed as a special case because of the Troubles. A report last year by the IPPR think-tank claimed that Scotland got more than its fair share of UK government spending: 5,676 per person in 2007-8, 21 per cent above the UK average. However, it also showed that London was the biggest winner from the formula. The SNP says Scotland subsidises the rest of the UK as a result of North Sea oil.