Shadow Scottish Secretary Margaret Curran has insisted Labour's review of universal services is not a betrayal of the party's traditional values.
Responding to criticism of Scottish Labour leader Johann Lamont's call to end the "something for nothing" culture, Ms Curran accused the SNP Government of engaging in "fantasy politics" and said Labour had a duty to flag up the true cost of public service provision.
Speaking to the Herald on the eve of Labour's UK conference, she said: "We have to move away from fantasy politics in Scotland. We are constantly told by the SNP Government everything is fine and that's just not true.
"If we serve our constituents we have a duty to flag up the true costs: 30,000 workers have been lost in the public sector and services are being squeezed constantly."
Deputy First Minister Nicola Sturgeon rounded on Ms Lamont in Holyrood during the week, branding her a "poster girl for the Tories".
Ms Lamont had said Labour would review SNP policies such as the council tax freeze, universal NHS prescriptions and free tuition for Scottish university students in order to balance the books.
The SNP has claimed the policy shift is overwhelmingly unpopular, based on soundings taken by telephone canvassers, and was a "fumbled" attempt to pre-empt Shadow Chancellor Ed Balls's UK-wide spending review.
A senior party source said: "The SNP certainly believe that Johann Lamont’s speech was an attempt to pretend that the Holyrood leadership is driving Labour’s approach to spending in Scotland, when the reality is that she was merely pre-empting the line laid down by Ed Balls."
Salmond in Chicago
Meanwhile, First Minister Alex Salmond drew parallels between Scotland's economic situation and the early years of the United States during a visit to Chicago to coincide with the Ryder Cup.
A Scottish Government delegation is in the city attempting to drum up support for business and sport ahead of the next edition of the golf tournament at Gleneagles in 2014.
Mr Salmond said: "In order to fully realise our potential, we need the powers of an independent nation, rather than the limited powers that are currently available to us.
"Without independence, we are promoting recovery with one hand tied behind our backs. We currently have fewer economic powers than Illinois.
"The simplest encapsulation of the case for independence is this - that the people best placed to make decisions about a nation's future are those who choose to live and work there. They will always be the people who care most. That was true of the USA in the 18th century and today - it is also true of Scotland.
"That argument is a civic and inclusive one. It does not emphasise where people have come from; it emphasises where we want to go together as a nation."
Labour's shadow Scotland Office minister William Bain accused Mr Salmond of creating his "own version" of American history with his comments.
He said: "The USA didn't just seek independence from Britain in the eighteenth century, they also started a project to create a union of states that endures to this day.
"US states benefit from having strong state government but also being part of a political and economic union that allows them to pool resources.
"During the downturn in 2010 the federal government transferred over $500 billion to state and local government across the country ensuring that places in greatest need were able to cope with recession."