Row flares over claim of SNP-Labour coalition talks

• Alex Salmond and Iain Gray share a platform - despite the body language their parties could end up working together

A source close to Scottish Labour leader Iain Gray told The Scotsman a tentative approach has been made to one of his aides over whether he would be willing to strike a deal in a "post-Alex Salmond era".

Mr Gray has taken the move as a sign that senior figures in the SNP are preparing for defeat at the election and, in a major shift in position, the source said the Labour leader had not ruled out a deal with the Nationalists if Mr Salmond stepped down as party leader.

But the SNP last night flatly denied the claim, pointing to new opinion polls that have put Scotland's two biggest parties "neck and neck". An Ipsos Mori survey yesterday showed the SNP on 34 per cent and Labour on 37, while a YouGov poll commissioned by the Nationalists puts them on 35 per cent with Labour just one percentage point ahead on 36.

There has been speculation in Holyrood that Mr Salmond might quit before the election in favour of his deputy, Nicola Sturgeon, and he certainly would not stay on as party leader in the event of a defeat next May.

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The Westminster election in May this year dealt the SNP a psychological blow, after the party fell well short of the 20-seat target set by Mr Salmond, managing only to hold on to the six it already had. Labour was the clear winner in Scotland with 41 of the 59 Westminster seats.

With the electoral system in Scotland making it difficult for a party to win a majority at Holyrood, Labour has made it clear that it wants to form a minority government if it is the biggest party in May next year. There has also been speculation about an SNP, Tory, Liberal Democrat pact to keep Labour out.

However, the source close to Mr Gray told The Scotsman that the approach by a senior SNP figure had suggested an alternative scenario.

"We just laughed when the approach was made, but it did seem to confirm that senior figures in the SNP are now looking at a post-Alex Salmond future," he said.

"Obviously they are expecting defeat and they know that he would not stay on in those circumstances. They also know that there is no chance of Labour working with them while Salmond is leader."

However, he said that the approach had come from the gradualist wing of the party, which was not as set on independence immediately and would be happy to work for more powers.

"In that sense there is support for more powers in the Labour Party in Holyrood as well," the source said. "We can see the party looking for further powers for Holyrood in the future so we could have a shared agenda with members of the SNP who are not fundamentalist about independence which we would never support."

He added: "We share much in common in the sense that both parties are broadly centre-left and neither of us like these Tory- Lib Dem cuts."

A deal could be possible on the lines of the Labour-Plaid Cymru agreement in Wales, where the nationalists have reduced their aspirations to more devolved powers.

But the deep-seated hatred between Labour and the SNP makes a deal north of the Border more difficult.

One of the reasons that a centre-left coalition alternative to the Tory-Lib Dem pact collapsed at Westminster was because Labour refused to work with the SNP.

Last night, one senior Scottish Labour figure said that "working with the SNP would be like having a cup of cold sick".

Another raised concerns that in the current climate of cuts, a Labour-SNP coalition in Holyrood would serve only to focus anger on London and be "playing into the SNP's hands".

A spokesman for Mr Gray insisted that the Labour leader was only concentrating on winning the election next year.

"A coalition with the SNP has not even crossed Iain Gray's mind," he said. "He is just working at getting as many seats as possible in the next election and making sure Labour is the biggest party.

"Mr Gray has not written anything off, because, as in May this year, when the electorate makes its view clear, then we will have to listen."

However, a spokesman for the SNP said that his party and the Scottish Government were "completely opposed" to making any deal with Labour.

"There is no truth in suggestions that anybody has approached the Labour Party," he said.

"We were prepared to consider a deal in Westminster to stop the Tories and to form a progressive alliance. However, it is completely different in Holyrood where it is a two-party contest between us and Labour.

"We just don't think Labour have any ideas or anybody substantial enough for us to want to work with them. The electorate booted them out in 2007 because they were totally discredited."

If a deal was to be done the parties would have to put aside years of tribal animosity centred around the fact that the two are the biggest parties in Scotland.

Notably, despite both being politically centre-left, the two parties have agreed on little since the SNP came to power in 2007.

Many were surprised when Labour refused to back minimum pricing of alcohol and some commentators argued that this was to make sure the Nationalists did not have an iconic "smoking ban moment".

However, recent moves by the SNP to focus their attention on fiscal autonomy rather than outright independence have been taken as a softening of the party's position, at least by its leadership.

While Labour is also opposed to fiscal autonomy, some sources within the party have made it clear that they welcome an approach by the SNP which moves away from outright independence and concentrates on more powers for Holyrood.

However, the two parties are still fiercely divided on the latest Calman Commission proposals for the Scottish Parliament, mainly over plans to increase the tax varying powers to 10p, which the SNP believes will offer no new real powers but could cost Scotland money from the block grant.