Alex Salmond to demand £700m from David Cameron

• There could be harsh words as David Cameron and Alex Salmond do battle over the latter's cash demands. Pictures: PA

Having made tackling the UK's 162 billion deficit one of his government's over-riding priorities, Mr Cameron will be presented with a multi-million- pound wish list from the First Minister.

And Mr Salmond's demands for more money to be diverted to Scotland at a time when the UK economy is suffering from spiralling debt will severely test the developing relationship between the two men.

In a wider sense, his call for a Scottish "fiscal stimulus" also has the potential to strain relations between the SNP government in Edinburgh and the Tory-Lib Dem administration at Westminster.

Mr Cameron has always said one of the first things he would do after entering No 10 would be to head to Scotland to meet Mr Salmond as part of a drive to create a "respect agenda" between the two governments.

The tactic was devised by Mr Cameron's strategists to combat the SNP's argument that a Tory-led government would not have a mandate in Scotland, given the lack of Conservative support north of the Border.

Last week, the party returned only one Scottish MP out of 59 seats.

So far, the two politicians' dealings with each other have been described as "amicable".

But if the Prime Minister's plan to build a constructive rapport with Mr Salmond is to succeed, they will have to overcome the yawning ideological gulf that separates them politically and economically.

The extra cash demanded by the First Minister includes up to 350m of accelerated capital spending – money brought forward from future budgets to stimulate the economy.

He will also ask for 165m he claims Scotland is due as a result of London hosting the 2012 Olympics. Under the Barnett Formula, the mechanism that determines the size of Scotland's budget, the SNP says Scotland deserves a portion of UK money earmarked for regenerating poor areas.

Mr Salmond will also ask for the release of the 180m fossil fuel levy held by Ofgem in London. He believes the money raised from energy producers using non-renewable resources should be spent on developing Scotland's offshore energy sector.

In addition, the First Minister will renew his calls for the Scottish Parliament to be given borrowing powers.

Last night, Mr Cameron's aides were tight-lipped when asked about Mr Salmond's plans.

But the Scottish representatives of the Tories' junior coalition partners, the Lib Dems, had no hesitation in ridiculing the plea for more cash.

The party's Holyrood chief whip, Mike Rumbles MSP, said: "The First Minister is relying on fantasy economics. Last week, he promised savings but couldn't tell anybody how and today he's waving around a multi-million-pound wish list. Alex is still in wonderland."

The cash plea was also treated with scepticism by political economist John McLaren, of the Centre for Public Policy for Regions, based at Glasgow University. He said: "We are still seeing the politics of blame – not the politics of responsibility. We don't yet know at what point that changes to a realistic discussion about what needs to be cut, but the sooner the better."

Mr Salmond yesterday tried to build a cross-party consensus with Labour at Holyrood in an attempt to pile the pressure on the Tory-Lib Dem regime.

He outlined his view in a letter to Iain Gray, the Scottish Labour leader,

which pointed out the redrawn political landscape that sees Labour in opposition at Westminster as well as Holyrood. "Now that your hands are no longer tied to London ministers, I would be interested to hear if you would be willing to join with this government and with parliamentary colleagues across the chamber on these issues," Mr Salmond wrote.

He argued it ought to be possible for the SNP and Labour to come together across party lines to protect Scotland's interests, adding: "The strongest possible unity in the Scottish Parliament on the need for progress on such matters as a fiscal stimulus, borrowing powers, Barnett consequentials for Olympic regeneration spending and releasing the Fossil Fuel Levy would maximise the opportunity of securing these objectives from the UK government."

But the move was given short shrift by Mr Gray, who described the Salmond wish-list as "a desperate attempt to cover up the SNP cuts of 1,200 jobs in the NHS in Glasgow today".

The Scottish Labour leader was referring to yesterday's announcement that 1,200 people, including nurses and midwives, are to lose their jobs at NHS Greater Glasgow and Clyde over the next 18 months.

"Instead of indulging in political stunts writing letters to other parties, he should use his 'mighty hand' to write to his health secretary telling Nicola Sturgeon to block these jobs cuts immediately," Mr Gray said.

Mr Cameron will travel north today with Danny Alexander, the Lib Dem Scottish Secretary.

A Conservative spokesman said: "Tomorrow's meetings mark the beginning of a new spirit of co-operation between Holyrood and Westminster. We want to repair the relationship between our parliaments and our governments. David Cameron will be a Prime Minister who treats Scotland with respect, who listens to Scotland and governs in Scotland's interests."

Salmond's four demands

BELOW are the four key things Salmond wants for Scotland.

In the spirit of the No 10 "love-in" between Cameron and Clegg on Wednesday, Tom Peterkin rates each demand with its own love-in rating, between PM and First Minister. Three hearts means the demand will almost certainly be met; two that it will possibly be met; one is unlikely; while a broken heart spells out that the political honeymoon is very definitely over.

Accelerated spending

Alex Salmond wants accelerated capital spending of up to 350 million to provide an economic stimulus during the economic crisis. Most of the cash would be spent on affordable housing.

Money would be taken from future budgets i.e. 2011-12 and brought forward to the current financial year 2010-11. The previous UK government has done this before.

Olympic consequentials

The First Minister claims Scotland is due 165 million from the London Olympics budget over the next five years. Of the Olympics budget, more than 1 billion has been earmarked for "regeneration spending" to improve impoverished areas. The SNP calculates that under the Barnett Formula – the funding mechanism that determines Scotland's block grant – Scotland is due 165m of that.

Fossil Fuel Levy

This fund has been the subject of dispute between the two governments. The SNP says the 180 million is Scotland's portion of the money raised by energy producers using non-renewable resources, It is currently sitting in an Ofgem account in London. In the past, Treasury officials blocked the release of the money unless there was to be a squeeze in other parts of the Scottish budget. Difficult to see policy changing.

Borrowing powers

Borrowing powers for Holyrood would provide another economic lever that could help finance large projects such as the new Forth Crossing. The Calman Commission has recommended that Scotland gets its own borrowing powers. The new Tory/Lib Dem deal includes a commitment to introduce Calman's proposals, although a date for implementation has yet to be specified.

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