An incoming Conservative Westminster government would negotiate with the SNP at Holyrood over the £400million council tax rebates that the Nationalists need to make their proposed local income tax work.

The offer of dialogue from David Mundell, the Shadow Scottish Secretary, was seized on by Labour as evidence of further “cosying up” between the Tories and SNP.

Last week Alex Salmond was attacked after revealing that he “didn't mind” the effect Margaret Thatcher's economic policies had on Scotland. The First Minister faced calls from Labour to apologise and “hang his head in shame”.

Labour claimed that the offer of talks over the £400million rebates being passed to Holyrood in the event of the council tax being scrapped signalled the emergence of a pact between the SNp and Tories.

A Labour spokesman said: “Coming just days after Mr Salmond's revelation of his love for Mrs Thatcher's economic policies, this intervention is highly curious. The Tories need to make clear whether they oppose local income tax or not.”

Mr Mundell said that in the event of David Cameron winning the next election the Tories would have an “open dialogue” with the SNP over the future of the rebate money which currently comes to Scotland.

Mr Mundell said: “We will not be seeking a confrontatiuon on issues like council tax benefit. We are open to having a dialogue on it. We are re not seeking to veto the proposals.”

In addition to accusations of closer links between the Tories and the SNP, the stance also brings into question the extent of the Conservative's commitment to the continuation of the council tax.

The Scottish Tories want the current tax to be reformed and have opposed the SNP's plans for an income-based tax.

Tory sources say that they want the plans to be shot down in Holyrood by MSPs rather than be seen to be blocked by Westminster.

A spokeswoman for the First Minister yesterday welcomed the Tories intervention in the debate.

She said: “There is a growing consensus that it is the right thing to do. It is Scotland's money”.

The Labour Government at Westminster has said that the money will be stopped if the Nationalists press ahead with their proposal to end the council tax and replace it with a local income tax.

The refusal to continue the payments leaves the SNP with a huge black hole in their plans to pay for their proposals.

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