THE head of a Government-backed review of regional spending has told MPs that scrapping the present formula for allocating public money is the only way that deprived regions such as the North-East can get a better deal.

Under the current Barnett Formula, the region receives about £1bn a year less than Scotland.

Professor Iain McLean, head of the Treasury-funded unit looking at changes to regional spending, told the Treasury Select Committee there was no current mechanism which could reduce inequalities between poorer and well-off regions.

Current spending was allocated on factors including population density and geography.

Asked by Central Newcastle MP Jim Cousins if there was any mechanism that existed to reduce inequalities, Prof McLean said: "My answer has to be no.''

He told the Committee that the combination of new regional government and a change to the spending formula could redress the regional imbalance.

Prof McLean is proposing a new system of allocating spending based on gross domestic product (GDP) per head of population - which would see London receive £1,268 less per head and Scotland £568 less per head than they do now, but the North-East would benefit by £765 per head.

"You've got a picture which shows at the moment no relation at all between GDP per head and spending per head. When you get that, something odd is going on,'' said Prof McLean.

The Treasury Committee will continue its inquiry over future weeks.

In the meantime, Chancellor Gordon Brown will next week announce the results of the annual Comprehensive Spending Review, in which it is widely expected that he will hand out extra funds for development agencies such as One NorthEast.