Labour turn up heat on their new arch-enemy (and former best friend)

With as many as 40 per cent of voters still undecided about May's election, Labour strategists insist they are confident they can persuade enough people to reject the resurgent Scottish National Party, which is leading in the opinion polls.

But campaign insiders admit Labour will have to work to stop such voters switching their support towards the Lib Dems instead. Labour has identified the Lib Dems' pledge to replace the council tax with a local income tax as its coalition partners' greatest weakness, and plans to target it "relentlessly".

"When people peel away from the SNP, they tend to switch either to us or to the Lib Dems. Our pre-campaign is aimed at telling people about the personal financial costs of voting SNP and independence, and the same tactics will hold good for the Liberals and local income tax," said one Labour source.

Sir Peter Burt's review of local government financing in Scotland calculated that were a local income tax to replace the unpopular council tax, the new tariff would have to be set at an average of about 6.5 per cent.

Labour claims an average couple, on an average salary living in a Band D property in Edinburgh, would face a bill for 2,030.02 under local income tax, compared with a council tax bill of 1,152 - an increase of 878.02.

"The postwar history of parliamentary democracy in western Europe shows that no party proposing new taxation ever does very well, and the Liberal Democrats are unlikely to be any different," the Labour source added.

Denying the Lib Dems even a small number of seats could pay a huge dividend for Labour, if it means the Liberals are unable to help the SNP reach the combined 65 seats required for a stable two-party coalition.

An ICM poll for The Scotsman last week suggested that, on current standings, the SNP will win 44 seats to Labour's 41, with the Lib Dems on 23 and the Conservatives on 17. That would allow SNP leader Alex Salmond to form a coalition with the Lib Dems without needing help from other parties. Some Labour insiders hope that, by hurting the Lib Dems, they could reduce the ability of Nicol Stephen, the deputy first minister, to act as "kingmaker", effectively choosing between Labour and the SNP as coalition partners.

One of the key tests for the Labour attack on the Lib Dems is Strathkelvin and Bearsden. The seat is held by the independent hospital campaigner Jean Turner, and both Labour and the Lib Dems are hoping to take it in May. The Labour candidate is David Whitton, who is campaigning heavily against the Lib Dems' local income tax idea.

"When you show voters how much more they would be paying under the Lib Dem plan, that hits home hard," Mr Whitton said yesterday while campaigning in the constituency, one of the most affluent in Scotland.

Some Labour insiders are also hoping to target the Lib Dems' record on crime, though that attack could be even more complicated because Labour and the Lib Dems effectively share responsibility for law and order at the Executive level.

With Labour's poll ratings still subdued, the party has no realistic hope of securing an outright majority at Holyrood come May, meaning party managers are, at best, hoping to form another power-sharing coalition.

As part of the pre-election process of bluff and counter-bluff, some Labour figures are talking of trying to govern without the Lib Dems, as a minority Executive reliant on Conservative and even Green MSPs to vote through key legislation.

"The terms of the coalition agreement are well known and well understood - we co-operate fully in government, but we are free to campaign however we want at the election," said another Labour insider.

"No-one should be under any illusion: This campaign will be very fiercely fought, and that applies to the Liberal Democrats as much as anyone else."

Cabinet colleagues defend Prime Minister as backbenchers call on him to quit

CABINET ministers yesterday rallied to support Tony Blair even as the Prime Minister faced new warnings that the cash- for-peerages scandal could force him from office within weeks.

Following last week's disclosure that Mr Blair has been interviewed for a second time by police, some Labour backbenchers have been stepping up pressure on him to quit.

And yesterday, an opinion poll suggested that a majority of voters think Mr Blair should go before his planned departure date of late June or early July. The ICM poll said 56 per cent of people want Mr Blair to resign immediately.

David Cameron, the Conservative leader, and Sir Menzies Campbell, of the Liberal Democrats, have both said Mr Blair should quit now.

And with even ministers admitting that the cash-for-peerages inquiry is hurting the government, a growing number of Labour backbenchers believe Mr Blair could be removed before the May elections to the Scottish Parliament and English local authorities.

While few MPs are yet willing to go public with their concerns, several are understood be ready to demand Mr Blair's resignation in the event that any of his inner circle are charged following the police inquiry.

But the Prime Minister is determined to stay in office. So far, he retains the support of most ministers, who believe that forcing him to quit before the investigation is concluded would simply damage Labour even more. Most significantly, Gordon Brown, the Chancellor and prime minister-in-waiting, has let it be known he does not want Mr Blair to be forced from office.

The Chancellor, still scarred by the public backlash to an attempted coup by mounted against Mr Blair by his supporters last year, has told allies not to encourage those now manoeuvring to oust the Prime Minister. With polls predicting a serious challenge to Labour in the May elections, the Chancellor is said to be happy for Mr Blair to "take the bullet" by resigning shortly after the elections.

While Mr Brown is avoiding public comment on Mr Blair's future, a number of Cabinet ministers yesterday staged a public show of support for the Prime Minister.

Tessa Jowell, the Culture Secretary, Patricia Hewitt, the Health Secretary, and Hazel Blears, the party chairman, all insisted Mr Blair should be allowed to see through his own timetable.

That timetable is likely to see a resignation shortly after the 3 May polls and a final departure from office after the European Union summit on 15-16 June .

Backing for McTernan

MINISTERS moved to protect a senior aide involved in the cash-for-honours inquiry yesterday following concerns his involvement in the Scottish election campaign was tarnishing the image of the Labour Party north of the Border.

John McTernan, a key adviser to Tony Blair, has been questioned twice by police concerning the alleged awarding of titles in return for party loans.

He is also working on Scottish Labour's re-election campaign, leading to concerns within the party that they will be associated with the growing scandal.

Yesterday it was suggested Jack McConnell, the First Minister, is uncomfortable with Mr McTernan's growing role in co-ordinating the campaign.

However, ministers both north and south of the Border were quick to deny the report. David Cairns, the Scotland Office minister, gave a glowing endorsement of Mr McTernan.

He said: "I have known John McTernan for many years. He is one of the sharpest political minds we have and it is wonderful he is engaged in the campaign.

"Nobody is telling John McTernan to go anywhere because he has helped us to highlight the spending commitments the SNP are making like drunken sailors."

It is understood Mr McTernan intends to step up his campaign role by spending up to five days a week in Scotland instead of his usual three.

A spokesman for the First Minister said Mr McTernan will continue to play a part in the campaign. He said: "John McTernan is one of a number of officials playing a vital role in Scotland's campaign to ensure that the next session of parliament is about investment in education rather than the separation of Scotland from the rest of the UK."

Alex Salmond, leader of the SNP, claimed yesterday's statements showed Scottish Labour were in "disarray" over the issue.