The way state cash is shared out between the four nations of the UK is unfair to England and could undermine the union, according to a report.
The Government spent just £4,523 per head in England in 2007/08, compared to £5,050 in Wales, £5,676 in Scotland and £5,684 in Northern Ireland, said the report from the thinktank IPPR North.
When central funding is measured against economic performance and poverty levels, Scotland is receiving more than it needs and England less, said the report. And it warned that the disparity has become "an increasing source of tension" between the four nations.
The report called for a new financial settlement combining greater tax-raising powers for the devolved administrations with a new central government grant calculated according to need.
The Barnett formula which has governed the distribution of money between the UK's nations since the 1970s is "no longer fit for purpose" and should be scrapped, said IPPR North senior research fellow Guy Lodge.
"It does not result in a fair distribution of spending, and is becoming an increasing source of tension between the nations of the UK," he said.
"There is currently popular support for the continuation of the union in all parts of the country, but failure to act now and address devolved funding could see this tension grow.
"Barnett has very few friends left. Political parties across the political divide and across the UK are voicing their concerns about the way it works. This presents a real opportunity for reform, which the UK Government should now seize."
Thereport found that 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.
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The Barnett formula contains a "squeeze" mechanism intended to bring about equal spending over time, but the paper found little evidence that this was having an effect in Scotland, where spending has increased since 2002 from 15% above the national average.
