Scotland would be bankrupt if it had voted for independence, due to falling oil prices, peers have been told.

Labour former Scottish minister Lord Foulkes of Cumnock said oil revenues would not have produced the £7 billion forecast by the SNP but just over £1 billion instead.

"An independent Scotland would now be bankrupt," he said at question time. "Isn't it a good job we voted No in the referendum."

Treasury spokesman Lord Newby agreed there would be a £6 billion deficit compared to figures in the Scottish Government's White Paper on oil revenues.

"This would mean the Scottish deficit for 2016-17 would be over 6% of GDP - one of the biggest in the developed world."

Tory former minister Lord Hamilton of Epsom said that as the progress of Scotland towards independence seemed "almost inexorable" shouldn't "we be getting them used to the idea of doing without English money and phasing out the Barnett formula over a period of years".

Lord Newby replied: "That's exactly what we are doing. The transfer of tax revenue to the Scottish Government means the block grant, which is the element to which the formula applies, is falling by two thirds..."

Plaid Cymru's Lord Wigley said comments about phasing out the formula would be noted with considerable interest in Wales.

He said Wales was getting £1.2 billion less under the formula than it would if it were "on the Scottish basis" and called for new arrangements to give Wales a "fair deal".

Lord Newby said funding was at an "appropriate" level for Wales.

Labour former Lords leader, Lord Richard said the Barnett formula was still "deeply relevant" to Wales.

He said it was clear the formula was "unfair" and should be changed.

"The Government has set its face against being changed, I don't for the life of me understand why.

"It ought to be based on needs and not upon some mathematical formula applied to a block grant system, which has been out of date for about 40 years." he said.

Lord Newby said the Welsh Secretary was considering the devolution settlement and was aiming to reach a cross party agreement by March 1.

SNP MP Pete Wishart hit back at Lord Foulkes and said: "The reality is that Scotland is a very wealthy country, even without oil - which has been bankrolling the Westminster Treasury for 40 years.

"UK governments have been very quick to grab hundreds of billions of tax revenues from the North Sea, but the Treasury moves at a snail's pace when it comes to giving the industry help.

"Lord Foulkes and his Tory friends in the Lords are so out of touch it beggars belief. The North Sea oil and gas industry is crying out for help from Westminster to simplify the tax regime and an immediate cut to the supplementary charge - a call backed and reiterated by the Scottish Government. The fact that there has been no such offering, just sniping from the sidelines from Lord Foulkes and his Tory friends, remains deeply disappointing."