The Scottish National Party has dropped its "Penny for Scotland" policy which was designed to raise public spending north of the border.

The policy of using the Scottish Parliament's tax varying powers to increase revenue was a cornerstone of the party's manifesto going into the first Holyrood elections in 1999.

However, SNP leader John Swinney said the policy would now be dropped because Scots taxpayers were paying more under Labour.

The argument that we put forward in 1999 has been comprehensively won by the Scottish National Party

John Swinney, SNP leader

In the run-up to the elections in 1999, the SNP said it would not implement a one penny cut in the basic rate of income tax which had been announced that year by Chancellor Gordon Brown in his UK Budget.

Instead it planned to use the new parliament's tax varying powers to keep the basic rate of income tax at 23p - which would have generated �230m per annum to spend on Scottish health, housing and education.

Mr Swinney has now announced the end of that policy but said the penny on National Insurance contributions announced in Chancellor Gordon Brown's last Budget was proof that the SNP's position had received the unspoken endorsement of Labour.

He also accused Labour of lying about tax going into the 1999 elections.

Mr Swinney said: "Gordon Brown has increased taxes and has put more money into the public purse.

Limited responsibilities

"So the argument that we put forward in 1999 has been comprehensively won by the Scottish National Party.

"We have forced Gordon Brown into a most spectacular u-turn to invest in our public services and to demonstrate that Labour lied deliberately going into the electorate in the 1999 election and the SNP told the truth."

The SNP leader told BBC Scotland's Holyrood programme that despite raising extra revenue, Labour had failed to address the problems in public services, particularly in the NHS.

And he said the "real debate" now was about giving the Scottish Parliament full fiscal powers, instead of limited responsibilities.

Patricia Ferguson questioned SNP economics

The SNP's opponents used the announcement to attack the Nationalists.

Labour MSP Patricia Ferguson said: "I think it just shows the basic flaws in the SNP's economic policies.

"You have to wonder about the literacy of their economic thought.

"In a week where Labour has shown that we can deliver massive investment for communities throughout Scotland, I think it's ironic that they should find themselves in this position."

Scottish Tory leader David McLetchie described the move as "an act of political cowardice".

He said: "Is it not amazing that the party that always talks about full fiscal freedom and independence is afraid to use the powers that the parliament has?"

A Scottish Liberal Democrats spokesman said: "It's all very well for John Swinney to tell us that he's dropping the penny, but what he must tell us is how he intends paying for the �3bn of spending commitments which he and his front bench team have told us they would make."