THE controversial Barnett Formula on public spending will continue, Alistair Carmichael has insisted, but the amount of money going to Scotland under it will be reduced to take into account the new tax-raising powers the Holyrood Parliament will receive.

Coalition sources made clear the £30billion block grant the Scottish Government receives from Whitehall each year will be reduced to reflect the new powers once they are introduced.

Treasury officials are now working on the details but the Smith Commission made clear the new rules would ensure "neither the Scottish nor the UK Governments will lose or gain financially from the act of transferring a power".

According to the UK Government, the total amount of money the new powers over such things as income tax, welfare, stamp duty, land tax and air passenger duty as well as the assignment of VAT will produce is around £25bn a year.

During Commons exchanges, Tory backbencher Philip Hollobone said Scotland received from English taxpayers an "additional annual public subsidy, over and above what any English region receives, not because there is an extra level of deprivation but simply because Scotland is Scotland".

He asked the Scottish Secretary about what proportion of the funds will be affected by the ceding of tax-raising powers to the Scottish Parliament?"

Mr Carmichael replied: ".The amount of money that goes to Scotland under it (the Barnett Formula) will be reduced because what is taken in taxation directly by the Scottish Parliament will be taken out of the equation.