The SNP Government and the Liberal Democrats are set to work together to see off a threat from Labour at Westminster to wreck plans to replace council tax with a local income tax.

Nicol Stephen, from his party conference in Aviemore, wrote to First Minister Alex Salmond in by far the friendliest terms adopted between them since last May's election.

The Salmond Government knows it has a fight on its hands to get the policy through, not just in terms of the Holyrood arithmetic which appears achievable, but in the teeth of stern opposition from Westminster.

There were indications yesterday it might not be possible to have the new tax in place until the final weeks of the current four-year term, and Mr Stephen urged the First Minister to ensure there was no slippage in delivering the policy.

The new Work and Pensions Secretary, James Purnell, reinforced the Westminster position at the weekend that there was no question of the current £400m in council tax benefit continuing to flow north to ease the creation of a local income tax.

"They are basically asking us to subsidise them for having a different system. That would seem to me to be pretty hard to justify," said Mr Purnell.

He was backed in this stance yesterday by the Scottish Secretary, Des Browne, who said Mr Purnell had "spelled out a logical position".

Scottish Finance Secretary John Swinney said: "It hardly does the standing of the UK government any good in Scotland to be threatening to take this money away."

He added: "Hopefully, once Mr Purnell has read our consultation document on local income tax, he will understand the issues. The Council Tax Benefit is Scotland's money, plain and simple."

Mr Stephen, in his letter to Mr Salmond, wrote: "We have a historic opportunity to rid Scotland of the legacy of unfairness that started with the poll tax."

Significantly, in his letter Mr Stephen did not even mention the main stumbling block to a deal with the SNP, which is the centrally set nature of the government's plans as they stand. Instead, the focus was on seeing off any threat from the other parties.

He wrote: "Labour, Tories and, as we have seen in the last 24 hours, the UK Government are all big friends of the council tax. Most people in Scotland want to see it go and see it go quickly. Media reports suggest you may delay the introduction of local income tax until 2011. We want it to happen sooner.

"An early meeting, this week, would allow our two parties the opportunity to ensure your White Paper gains a parliamentary majority. "