George Kerevan: Ukip-Tory UK not for confederalists

THINGS are afoot in England. A quarter of English voters now support Ukip – a right wing, populist party that has its roots in the values and nostalgia of Middle England.

'Cameron's project to make the Tories a more liberal, centrist party has been officially cancelled in the Queens Speech'. Picture: Getty

Boris Johnson wants the income from council tax, business rates and stamp duty devolved to the London Assembly – perfectly justifiable, but a body blow to the argument the Union is about fiscal sharing, as the metropolis is the richest part of the UK by far.

Above all, stung by the rise of Ukip, David Cameron’s project to make the Tories a more liberal, centrist party has been officially cancelled in the Queen’s Speech and Wednesday’s parliamentary revolt of a majority of Conservative backbenchers over an EU referendum. To see off Ukip, the Tories must guarantee an “in-out” referendum in the foreseeable future. Such a poll will solidify the English populist right, sideline Ed Miliband’s Labour Party, and almost certainly take the UK out of Europe.

Where will that leave Scotland? Our myopic referendum debate north of the Border has centred on the erroneous premise that Scottish independence is an issue all on its own. It was never that. The rise of the SNP and the demand for Scottish political autonomy since the late 1960s is merely one facet of the slow-motion disintegration of the old British imperial state following the end of Empire and the advance of economic globalisation. The emergence of anti-European, English populism is but another part of the general crisis of the old, moribund British state.

What the No campaign in Scotland has failed to accept is that Alex Salmond’s project is not the 19th century model of state autonomy. Instead Salmond is offering a new British confederation in everything but name. There would be a free trade, a common currency, a common head of state, and a common security strategy through Nato. The individual nations of the British Isles would have their own parliaments and domestic tax arrangements, meaning (crucially) that Middle England regains its direct political voice. The common monetary system would anchor the confederation economically. An English Parliament would assuage English populism and let traditional English liberal values shine.

To deliver this modernising vision for the whole British Isles Salmond has expended most of his considerable political capital. First to browbeat the SNP left into accepting Nato membership. Second to coral the party’s mainstream into keeping sterling – a vast concession to the rest of the UK as it deprives an independent Scotland of the ability to set its own interest or exchange rates. Be warned: no subsequent SNP leader will ever have the authority to deliver such a compromise package from the nationalist camp.

Unfortunately, the No campaign – led by a self-interested British Labour Party that is going down inevitably with the old British state – is unwilling to think strategically. This is the same backwoods Labour Party mentality that originally opposed devolution tooth and nail, supplying the infamous “40 per cent” rule that invalidated the Yes vote in the 1979 referendum, thus giving Scotland a decade of Margaret Thatcher.

The real toxic threat to socialism is not Scottish independence, which would inevitably see centre-left governments at Holyrood for a generation at least. Rather, it is the existing British state – with Scotland trapped inside – run by a populist right wing that depends on the votes of an outraged, anti-foreigner Middle England.

This bleak scenario raises an obvious question: is Salmond’s project of a new confederation of the British Isles still viable? The answer is yes, but only just. Everything hinges on Scotland being independent before England quits the EU.

An autonomous, progressive Holyrood acting in concert with the Rest of the UK (rUK) could help to renegotiate an acceptable partnership between the “inside” eurozone members and other EU members. OK, a long shot – but conceivable. This is because a pro-European Scotland would be listened to in Brussels and would find allies among the Scandinavian countries.

But a eurosceptic Tory-Ukip Westminster will never renegotiate Britain’s terms of EU membership. That means an exit from Europe, sooner or later. If Scotland is not independent by the time the English populists take us out of Europe then Salmond’s model of a new confederation of the British Isles is dead in the water. Britain would become little England, isolated from both Washington and Brussels. In such a situation, sharing a common currency with rUK would no longer be sensible for Scotland.

That does not mean Scotland would join the eurozone, any more than Sweden or Denmark want to scrap their domestic currencies. The eurozone remains wedded to deflation that is dragging its economy to disaster. Scotland should keep its distance. However, if an independent Scotland remained inside the EU (or in its economic orbit, like Norway) while the rUK left, it would not be in Scotland’s interests to keep sterling because of the uncertainties that currency would then face.

The only recourse would be to create a separate Scottish currency. That need not mean severing parity with sterling, at least immediately. There would still be advantages in keeping the two currencies equal for a transitional period to maintain business confidence. Likely the markets would punish rUK for quitting the EU, driving down the exchange rate of sterling. In such circumstances, it would be technically easy for the Scottish central bank to maintain parity by cutting interest rates and printing Scots pounds. That’s inflationary, of course, and there would come a time when the Scottish Chancellor would have to chart his own course.

Throughout the history of de-colonialisation (externally) and devolution (internally), Westminster politicians have never once shown an ability to understand the end game and embrace a strategic solution. Salmond’s generous offer of a confederation (including a common pound) is now in danger of being outflanked by the rise of the irredentist English populism – the very populism his new British confederation would deflect. The clock is ticking.