Jack McConnell ridiculed SNP policy making

The money is paid annually to councils by the Department of Work and Pensions, in the form of council tax benefit.

It is not clear what will happen if the council tax is scrapped.

First Minister Jack McConnell said it was a matter to be studied by the independent committee set up to study the future of local government finance.

The row provoked angry clashes at First Minister's Questions, with Mr McConnell accusing the Scottish National Party of framing policies "on the back of a fag packet".

The Treasury is said to be undecided on the issue, and the future of local government funding in Scotland is currently being scrutinised by a committee chaired by former banker Sir Peter Burt.

'Highway robbery'

SNP Holyrood leader Nicola Sturgeon claimed it would be "highway robbery" if the Treasury held onto the money and called on Mr McConnell to ensure Scotland would still continue to receive that cash.

But Mr McConnell accused her of missing the point.

"If Scotland was independent, the Westminster government would be the government of a foreign country," he said.

"And not only would we not get �300m from them - we would not get anything else either."

Only ministers can answer the �300m question, and we need an answer to that question now Nicola Sturgeon SNP Holyrood leader

The clash began with Ms Sturgeon recalling the question of what would happen to the cash, which was first posed last June by the then finance minister, Andy Kerr, when the executive announced the creation of the independent committee to study the future of local government finance.

Mr McConnell said this was a matter to be studied by the committee, one of whose tasks was to study the relationship between devolved and reserved issues on questions of local government finance.

"I think that's the proper way to look ahead to any changes in the local government finance system, rather than to have policies on the back of a fag packet, as others appear too ready to do," said the first minister.

But Ms Sturgeon said: "Only ministers can answer the �300m question, and we need an answer to that question now.

"Without an answer, the inquiry will be inevitably skewed towards the unfair council tax - because to recommend any other system would mean London withholding �300m of Scotland's money.

Cuts claim

"Will the first minister accept that the only way to avoid the dice being loaded in favour of the council tax is to get an assurance now that our �300m is safe, come what may?"

Mr McConnell said: "As Miss Sturgeon knows, the deficit we would have to fill in increased taxation and cuts in services in Scotland would be nearer three thousand million pounds."

He claimed the row showed "two different styles of politics" - one style that believed in setting up a proper independent review to advise parliament and the government on the system of local government finance and taxes, or blaming everything on London.

The funding of public services will be reviewed

He said: "We can greet and girn about London all the time, blame them for all the policies that we can't deliver for the SNP.

"But at the end of the day, the choices that this parliament makes should be made here - made here in the full knowledge of all the facts and not made on the back of a fag packet."

But Ms Sturgeon hit back: "The first minister is missing the point.

"If Scotland was independent, London would not have the �300m in the first place - and this parliament would be free to do what is in the best interest of Scottish taxpayers."

And she demanded: "When will the first minister start standing up for Scotland and standing up to London?"