Is an independent Scotland now inevitable? I'm beginning to believe it might be

Fast forward a year and a bit, and Britain has finally left the European Union, even if the nature of its future relationship with Brussels has yet to be settled. Unfortunately, another problem has loomed into view. By a comfortable majority, Scots have voted for an independent Scotland. A triumphant Nicola Sturgeon stands before Edinburgh’s St Andrew’s House, seat of the Scottish government, to announce that two years hence, the more than three centuries old Act of Union with England will be dissolved.

Now fast forward to the moment of departure, and the Scottish government is finding that, like Brexit, actually leaving a union of such long standing in a manner that is not going to be economically and diplomatically extremely damaging amounts to quite a challenge. Like Brussels, Westminster has proved a bad loser, and has refused to give Scotland the cake-and-eat-it independence it wants. For Sturgeon, the battle has been won, but the war has only just begun. Tail between her legs, the first minister is forced to seek an extension.

This is just one scenario, of course, but it is an eminently plausible one.

Though many would wish to deny it, Brexit and the renewed campaign for Scottish independence have strikingly similar characteristics. Even accepting that Scottish independence is partly framed as a way of staying in the EU, the aims and perceived opportunities of the two ambitions are much the same; both endeavours are about reclaiming national sovereignty, and assume that once the ability to tailor policy to national needs is restored, the economy will naturally prosper and thrive.

Both ambitions also face enormous practical challenges in disengaging from decades – in Scotland’s case centuries – of economic and legal integration with near neighbours. That’s essentially why Brexit has run into the sand, and it is also what floored the first referendum vote on Scottish independence nearly five years ago.

Yet in Scotland’s case, the challenges are even greater. The overwhelming bulk of Scotland’s trade is with the rest of the UK. Scotland also relies on substantial fiscal transfers from the rest of the UK to balance its budget, currently running at nearly 10pc of GDP, and shares liability for national debts equal to more than 80pc of total UK GDP. Currency union with the rest of the UK makes disengagement more difficult still.

Scottish nationalism failed last time around largely because the SNP had no answers to these questions. There was no credible plan for what would happen after independence, just as there is no agreed strategy today on what form of Brexit the UK should be pursuing, or even what we should be doing with the prize once won.

As Sturgeon gears up for a second bite at the cherry, she doesn’t intend to make the same mistake again. Scottish households will shortly be leafleted with what Sturgeon bills as a clear and realistic economic plan for independence, basing it on the recommendations last year of her “Sustainable Growth Commission”. “Don’t worry, it will all be fine”, the Brexit-like message used in campaigning last time around is to be replaced with a more sober and realistic assessment of the sacrifices that will have to be made on the road to sunlit uplands.

The currency issue is parked simply by committing Scotland to continued use of sterling, even though Edinburgh will have no automatic say in its administration, including the determination of interest rate policy. This isn’t a satisfactory long-term solution, but it is a good deal more pragmatic than Alex Salmond’s proposal for European-style monetary union between the two nations, which the Bank of England was never up for.

Mark Carney, Governor of the Bank of England, has warned that although a currency union between an independent Scotland and the rest of the UK is theoretically possible, it would require a high degree of fiscal alignment between the two

What to do about the public finances remains a major stumbling block, and makes the challenge somewhat different to that of Brexit, where there is a small budgetary dividend to be had from leaving the EU. Scotland, by contrast, faces a major loss of direct subsidy.

The proposal is to manage the deficit down over a 10-year time frame – a decade of austerity in other words, after the decade we have just had. Even accepting that defence will take the greatest share of pain, that’s a tall order in a country as wedded to the welfare state as Scotland. The whole thing also requires quite a bit of goodwill from the rest of the UK, including, in effect, forgiveness of Scotland’s share of legacy national debt.

To help ease the path, the commission suggests an “annual solidarity payment”, payable by Scotland to the rest of the UK, to reflect Scotland’s share of debt servicing costs. This in effect amounts to acceptance of liability, or that’s how markets will see it, anyway. We therefore need to add a pro-rata share of the UK’s national debt to the debt Scotland will accumulate over 10 years getting the deficit down to sustainable levels. Even with decent growth, effective public debt could still end up at well over 100pc of GDP, far too high for a small country.

All the same, there is the semblance of a plan here. The Bank of England and HM Treasury won’t so easily swat away the economic case for independence this time around.

But here’s the really interesting point. From an economic perspective, the most supportive form of Brexit for an independent Scotland is for the UK to remain in the EU’s customs union. A clean-break Brexit would force Scotland to choose between the UK’s internal market and that of the EU; it could not have both. For Scotland, the economic shock of cutting itself off from the rest of the UK would be much bigger than ditching the EU.

By the same token, the broader case for an independent Scotland is lessened if Britain abandons the quest and stays in the EU. For the UK to remain in the customs union – Labour’s preferred route and the default option in May’s Withdrawal Agreement – is the perfect outcome for an independent Scotland, allowing continued near frictionless trade with the UK along with access to European markets. Tax rates allowing, this could be attractive to finance. The skyscrapers of the City might in time decamp to Edinburgh.

In any case, almost unnoticed by the Brexit obsessives of Westminster, Scotland is again slipping away. In freeing ourselves from one union, we seem to have forgotten the importance of the union on our very own doorstep. The situation will soon be irreversible.