Combine sugar,and sifted flour, baking powder, and salt. Rub in butter until mixture resembles fine breadcrumbs.Press half the mixture into a well greased 20cm square pan. Dissolve baking soda in milk, add egg and nutmeg and pour over remaining sugar and flour mixture. Mix well, then spoon into pan on top of pressed in mixture. Sprinkle walnuts over. Bake in preheated oven at 180ºC for 1 hour. Allow to stand 15 minutes before turning out on to a wire rack to cool.