A report by MPs published on Saturday has concluded the way that funds are allocated to Scotland from Westminster lacks any basis in logic.
The Commons' Justice Committee also stated the controversial Barnett formula is long overdue for reform and should be reviewed as a matter of urgency.
The population-based formula has been branded unfair for "subsidising" devolved administrations at the expense of English taxpayers.
The report - which also questions the future of the post of Secretary of State for Scotland - calls on the UK Government to establish a UK-wide review of the formula and put forward alternatives.
It states: "The Barnett formula is overdue for reform and lacks any basis in equity or logic. It creates controversy in all of the constituent parts of the UK.
"There is controversy in England that the Barnett formula allows for higher levels of public spending in Scotland from the UK Exchequer and does not deal with different needs in different parts of England."
The findings are part of a wide-ranging investigation into ten years of devolution.
Much of the report deals with a need for "fundamental change" in the way England is governed.
Sir Alan Beith MP, chairman of the committee, said devolution has radically changed the way Scotland, Wales and Northern Ireland are administered - but had left England "stuck in a pre-devolution time warp".
"The funding formula is also a relic from earlier times, taking no account of the current need of the various nations and regions of the United Kingdom," he said.
The committee report also highlights the future of the historic post of Secretary of State for Scotland, currently held by East Renfrewshire MP Jim Murphy.
The report adds: "Many have questioned whether it is justified for those parts of the United Kingdom which have devolved government, and only those parts, to have individual secretaries of state in the cabinet.
"As relationships between the administrations mature, the role of Secretary of State for Scotland has clearly decreased, and the question of the continued separate existence of that office must be raised."
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