As the sound of "damn", "bugger" and "blast" resonates through Whitehall, ministers are reluctantly readjusting their last-minute holiday plans and heading for the English countryside. That's what the boss has told them to do. But they could do worse than head north - to Scotland. Not, I hasten to add, for the weather. Being married to a Scot myself, I am only too aware of the depressing effect of seeming to travel back two months in time when crossing the border at this time of year.

No, the reason for heading to Scotland is because it is a living, breathing experiment in what a different kind of Labour government could do. Home rule has not only "worked"; within a couple of years, it has produced an agenda that challenges new Labour thinking across the UK. That challenge is going to be very painful for Tony Blair's government in its second term.

Let us start with teachers, because that is at least seasonal. Just as we can't imagine Easter without chocolate eggs, nor can we imagine it without militant rumblings from the teachers' union conferences. This year, they are demanding a 35-hour working week, one-third of it to be spent outside the classroom. No surprise there, you may say: but this year, English teachers can look to Scotland, where their colleagues have been granted just that, along with - wait for it - a 21 per cent pay rise. Is David Blunkett, the Education Secretary, happy about that? Is Gordon Brown?

Then there are the Scottish students, rejoicing that they don't have to pay tuition fees while their English counterparts do. English students at Scottish universities, on the other hand, still have to pay their £1,000-plus a year - you can bet that goes down well in the halls of residence where English and Scots live side by side.

Now let us cross the age divide. English pensioners celebrating their £5-a-week increase this month could be forgiven for feeling a little envious of their Scottish neighbours. For the Scottish Parliament has voted to implement the Sutherland report, which will give free long-term care to the elderly. There is already a slow trickle of elderly folk from Carlisle and Cumbria over the border. If England does not go some way to matching the Sutherland recommendations, expect this to become a torrent.

The list goes on: Scotland's fishermen have been offered generous compensation for holding off from fishing the dwindling stocks in the North Sea; Scottish farmers are insistent that their Executive's response to the foot-and-mouth crisis has been faster and more efficient than that of the hapless Maff down south.

But why should any of this provoke a crisis? First, there is the old "border raiders" argument: the Scottish Executive can afford all this largesse without sharply raising taxes because the English taxpayer is subsidising it. Although the Scottish Parliament has mild tax-varying powers, the major part of its revenue comes in a big block grant. Since 1978, higher per-capita spending in Scotland has been locked in through the mechanism known as the Barnett formula, brought in as a way of facing down the Nats. The result? According to David and Gareth Butler (Twentieth-Century British Political Facts, 1900-2000), public spending per head of population in Scotland was £4,772 in 1997-98, just before devolution, compared with only £3,897 per head of population in England. There are growing calls from the English of "we want our money back". As Professor Anthony King pointed out in his recently published Hamlyn lectures, there is bound to come a point, sooner or later, when they get it - even if that's not until a Conservative government is eventually returned at Westminster.

Gordon Brown has been the great defender of Scottish interests in Whitehall, the minister arguing against amalgamating the "territorial departments" into a single job. He has a strong personal power base in the Scottish Labour Party and wants, naturally, to protect it. But it is no longer just the money. The behaviour of the Scottish Executive in going for across-the-board spending increases for all pensioners who need personal care, and all teachers, and all Scottish students, is a direct challenge to the Brown world-view, which is all about targeting and tax credits for specific groups. Many of Edinburgh's reforms actually help middle-class voters - students, better-off pensioners and the like - not what Gordon Brown is trying to do.

Even last year, all of this seemed something that could easily be kept inside the house. Donald Dewar and Gordon Brown were, to use an unfashionable word, comrades. With Dewar gone, the Chancellor confronts a changed Scottish Labour politics. He still has his supporters and former allies - including the new First Minister, Henry McLeish. But they are operating in a new world, where their careers depend on Scottish colleagues and Scottish voters, not to mention the Liberal Democrats in their coalition government, rather than on the goodwill of powerful ministers in Whitehall. And they are not behaving as he had expected.

You could stand back from all this and say it is just what devolution was always meant to deliver. Scotland has had a more statist, more egalitarian culture than England for a very long time. Unlike southern Labour, Scottish Labour is under pressure from an organised leftist challenge, the SNP. All true. But the more Edinburgh riles the Treasury, the more inevitable is the post-election clash over funding.

In the minor, but significant, spat over whether the Scottish Executive under McLeish could call itself the Scottish government, one Westminster Scot scoffed: "They can call themselves the White Heather Club if they want." Well, it looks as though the White Heather Club has taken up arms and gone to war.

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