What we are proposing is a fair formula, fair for Scottish interests as much as it is for anywhere else

Lib Dem leader Charles Kennedy

Ever since it was introduced more than 20 years ago, the Barnett Formula has been criticised.

It does not actually determine the amount of public spending. Instead, it uses a population-based formula to govern the way changes in spending are distributed.

Its supporters have argued that Scotland gets a fair deal for particular reasons, but critics assert that the distribution should be based on the needs of Scotland and other areas.

Mr Kennedy, who also called for the post of Scottish secretary to be scrapped, said the system was no longer fair or relevant.

Lord Barnett: Architect of formula

He told BBC Scotland: "You just need to look at the evidence of your own eyes as you go round the UK to see there are regional disparities within, for example, England. That can't be right.

"What we are proposing is a fair formula, fair for Scottish interests as much as it is for anywhere else, which is based on proper adjustment and recognition of needs.

"That's the basis on which it should be done, and post-devolution, that's the way it should be done."

He called for the establishment of a finance commission to allocate money to the UK's various areas on the basis of need rather than population.

The commission would be chaired by a secretary of state for the regions, taking the place of the existing secretaries of state for Wales, Scotland and Northern Ireland.

But Mr Blair's spokesman said the formula "produced a fair spending formula" for Scotland, Wales and Northern Ireland.

Formula's architect

Mr Kennedy is not alone in calling for changes in the way public spending is allocated throughout the UK.

The Barnett Formula's architect, Lord Barnett, a former Labour minister, has also called for its abolition, saying it gives Scotland as a whole too good a deal.

The Scottish Tory leader said Mr Kennedy's opposition to Barnett would prove damaging to Scottish Lib Dem leader Jim Wallace, who has supported retention of the formula.

David McLetchie said: "These proposals for the review of the Barnett Formula have seriously undermined his position within the Scottish Executive; as while Jim Wallace was stoutly defending the Barnett Formula in the Scottish Parliament Charles Kennedy and his cohorts in Westminster were planning to scrap it."

Scotland allegedly receives too much money

The Scottish National Party said Lib Dems appeared to be at "sixes and sevens" over the issue and warned that Mr Kennedy's proposal for a "London-based committee" would mean less autonomy for Scotland.

Finance spokesman Andrew Wilson said the Lib Dems should be backing their own MP Malcolm Bruce in his call for full financial autonomy for Scotland.

Mr Wilson said: "It is vital that we move from the Barnett Formula towards a better system for Scotland - and that means full fiscal freedom, as Malcolm Bruce has called for.

"The danger of what Charles Kennedy is proposing is that it could result in an even worse system for Scotland than Barnett.

Mr Kennedy's comments come just days before the UK Government releases its latest funding plans in the much-vaunted comprehensive spending review.