Last-minute promises to Scotland will scar the UK

Astonishing as it was to contemplate the breakup of Europe's most stable nation-state threatened by the Scottish referendum, we now have an even more extraordinary possibility. In the days since the Scottish voters rejected secession 55 percent to 45 percent, a new threat has suddenly appeared to blight Britain's political and economic prospects for years ahead. It now looks like Britain may be dissolved by one rogue opinion poll.

The YouGov survey, released shortly before the referendum, found nationalists overtaking the unionists for the first time. (And, as it turned out, the last time.) This triggered total panic among Britain's establishment politicians.

The outcome was a signed statement on the front page of the Scottish Daily Record by Prime Minister David Cameron, along with the leaders of Britain's Labour and Liberal Democrat parties, promising immediate legislation to give the Scottish Parliament almost complete control over income tax, health and welfare policies - on top of the autonomy it already enjoys. They also issued a permanent commitment to channel £1,700 more per head in government spending to Scotland than to England, despite per-capita incomes that are approximately the same.

By signing the statement, Cameron and the other party leaders opened a Pandora's Box of political and economic controversies that are certain to destabilize British politics. Businesses and investors who have viewed Britain as the most politically predictable and stable nation in Europe are in for a shock.

The Scottish vote, instead of confirming Britain's historic stability, now looks like the prelude to a long period of constitutional, legislative and fiscal turmoil. This will certainly damage the current government's re-election chances and could yet threaten a chaotic breakup of Britain.

The danger, not yet fully appreciated by international investors and political analysts, lies in the unintended consequences of the panic-stricken promises made to Scotland. They pushed to the top of the political agenda a constitutional demand long disregarded by all but a fringe of extreme English populists: creating an English government, with powers similar to Scotland's, either by electing a new English parliament or by denying votes on English issues to British parliamentarians from seats outside England.

At first sight, this reform could offer Cameron a huge political advantage. His Tories hold only nine of 117 parliamentary seats in Scotland, Wales and Northern Ireland - but 296 of the 533 English seats.

Until recently, this partisan benefit was so obvious that few Tories dared to openly campaign for a separate English government. But a powerful backlash against the "bribes" offered to Scottish voters has suddenly made demands for conferred respectability on the slogan of "English votes for English laws."

Better still for the Tories, this slogan appears to have snookered the Labor Party, which is over-represented in Scotland and Wales. If Labor backs "English votes for English laws," it would condemn itself to permanent minority status in England. But if Labour resists this seemingly fair principle, it looks undemocratic and venal.

Hence the widespread assumption among political analysts that Cameron has plucked victory from the jaws of defeat. But this assumption is probably wrong.

Espousal of English independence may initially look to the Tories like a no-lose proposition, but like many cunning wheezes intended as time-bombs for political opponents, this one is likely to blow up in its designer's face. For Cameron, the campaign for Scottish-style devolution in England poses three existential problems.

The gravest, if least probable, risk is that Cameron actually tries to deliver English autonomy after winning the election in May. A breakup of Britain would then be back on the agenda - driven by English instead of Scottish voters.

This is because a Scottish-style separation of English from Britain issues would be impossible. England is simply too large in relation to the other components of the United Kingdom to be governed separately on major issues. With 84 percent of its population and a slightly higher share of total gross domestic product, decisions made by English parliamentarians on major fiscal or social issues would dominate conditions in Britain as a whole.

If, for example, England were granted the same autonomy as Scotland to vote separately on income taxes and health and welfare funding, the British Parliament would be rendered powerless. If, on the other hand, such crucial votes were reserved to the British government, then the devolution of power to England would be rendered meaningless, since the British government would retain control over all key decisions on English taxes and public spending.

This fiscal conundrum provides just one example of how destabilizing the debate about English devolution could become. Creating English institutions with powers analogous to the Scottish government's may seem reasonable, but it would do to Britain what Boris Yeltsin's Russian government did to Mikhail Gorbachev's Soviet Union.

Once Yeltsin asserted the primacy of his Russian government on issues such as taxes and social spending in 1990, Gorbachev was left with an empty shell and the Soviet Union ceased to exist 18 months later. England's dominance in the United Kingdom is even greater than Russia's was in the Soviet Union. This gross imbalance rules out any symmetry between Scotland and England in a German-style federal structure.

In short, the idea of "English votes for English laws is a kneejerk absurdity," in the words of a powerful article published on Thursday by Vernon Bogdanor, one of Britain's foremost constitutional scholars. This constitutional absurdity now presents a greater risk to the UK's survival than the Scottish referendum ever did.

Which leads to the second problem that will face Cameron in the weeks ahead: Voters will gradually realize the momentous implications of English devolution and will almost certainly turn against the Tories for advocating something so radical and dangerous, for blatantly partisan motives and on an absurdly truncated timetable. If Britain really wants to transform its constitution, it should decide after years of debate, perhaps backed up by a referendum - not in the heat of an eight-month general election campaign. As Bogdanor says, "a constitution should be for life, not just for Christmas."

Here we come to the final problem for Cameron. Once the public recognizes the two dangers, Cameron will presumably back away from "English votes for English laws." But such prudence will be denounced as cowardice by Tory radicals, thereby damaging Cameron's credibility and deepening the splits between the party leadership and the majority of its MPs and activists, especially on the explosive issue of Europe.

Whether all this turmoil will fatally damage the British government's re-election chances is impossible to say - especially if the economy keeps improving. But here are two firm predictions: An election that Cameron planned to fight on economic issues will now be dominated by debate about a huge constitutional upheaval. And whoever ends up winning in May, Britain in the next eight months will feel like one of the least stable countries in Europe.

That, in turn, will mean many more market panics driven by rogue opinion polls.

© (c) Copyright Thomson Reuters 2014.