COUNCIL tax payers in the North-East could be hit in the pocket again as figures reveal more Government cash is siphoned off to the affluent South.

Campaigners for an elected regional assembly are putting together a case to press for a fair share of cash when a review of Government funding gets under way next July.

The move comes as the Government yesterday rejected demands to scrap the controversial Barnett spending formula which sees the North-East losing more than £1bn of public spending a year.

In the first Commons debate on the subject for 23 years, Economic Secretary Ruth Kelly told MPs: "We have neither a commitment, nor any plans to review the Barnett Formula."

Government funding figures show that, despite being one of the most deprived regions in the country, the North-East receives only slightly more than the national average.

It receives only two per cent above the average. But London, Scotland, Wales and Northern Ireland receive between ten per cent and 40 per cent more than the North.

Local Government Secretary Stephen Byers is due to carry out a review of the way councils are funded next July. It is hoped it will take into account funding based on economic factors rather than by population alone.

Council leaders fear unless the funding formula is changed it will lead to further increases in council taxes.

Coun Tony Flynn, chairman of the existing North-East Regional Assembly (an appointed group of leading regional figures), said they were preparing to lobby the minister. "We will be pointing out the shortcomings in the grant regime," he said.

"We hope the review will recognise that you should not take away funding from areas like the North-East just because we're losing population.

"Most local authorities have fixed costs."

Lord Barnett devised the funding formula named after him almost 25 years ago to tackle deprivation north of the border.

But the North-East receives £430 less public money per head than Scotland for spending on public services.

Speaking during yesterday's debate, Ruth Kelly said the formula was not "set in stone" and there was always an ongoing review.

But North-East MPs said they were disappointed at the lack of action.

Joyce Quin, Labour MP for Gateshead East, said: "The Government is very much aware of the disquiet that is felt across regions like our own."

Jim Cousins, Labour MP for Central Newcastle, rejected arguments that the campaign to change the formula was because Scottish spending was too high.

He said: "Quite the contrary, Scottish expenditure provides a benchmark by which we can compare the needs of our own regions."

He called for a proper assessment of regional needs.

Angus Hynd, assistant regional director of the North-East Confederation of British Industry, said: "The imbalances between ourselves and Scotland are worsening - particularly since devolution. They are not being addressed."

Dr John Bridge, chairman of One NorthEast, the Government's regional development agency, said: "We will continue to press the Government for an equitable share of funding.