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The Barnett formula covering government funding across the UK, is unfair to England, says a think tank.
IPPR North says it is becoming a "source of tension" - especially between England and Scotland.
It says, measured against economic performance and poverty, Scotland gets more funding than its needs suggest, while England gets less.
The Scottish government says the only alternative is full fiscal autonomy and control of its own resources, like oil.
The Barnett formula has been used to share out central government funding since the 1970s, but even Lord Barnett, after whom it was named, says it should be scrapped because he believes it is unfair.
The report by IPPR North says the government spent £4,523 per head in England in 2007/08, compared with £5,050 in Wales, £5,676 in Scotland and £5,684 in Northern Ireland.
It says spending in Northern Ireland and Scotland was about 21% and in Wales 8% higher than the UK average, while in England it is 3% lower.