Who will lead the campaign to save the Union?

Gus O'Donnell is right to warn that the future of the UK is an "enormous challenge".

In a valedictory article for today's Telegraph, Gus O'Donnell, the outgoing head of the civil service, warns that the question of "whether to keep our kingdom united" will be an "enormous challenge". It may seem like an obvious statement but it is also a necessary one. Far too few in Westminster have considered what an independent Scotland would mean for England.

We all know who will lead the Yes campaign - Alex Salmond - but who will lead the No campaign? Not David Cameron, whose party holds just one seat in Scotland (the country has more giant pandas than Tory MPs). Canny as ever, Salmond will wait until the Tories are at their most unpopular before calling a referendum.

One option floated by some in Labour is for Gordon Brown, who retains immense respect in Scotland, to return to lead the charge against independence. Only the former prime minister, they say, would have the gravitas required to take on Salmond. But this discussion is taking place in far too narrow a circle. The threat of Scottish independence, which would deprive Labour of 42 of its 258 Westminster seats in a single stroke, should be near the top of Ed Miliband's in-tray.

At the very least, it is likely that Scotland will win full fiscal autonomy within the next five years. As Salmond has said, the referendum ballot paper will contain two questions: the first on full independence and the second on "devolution max" or fiscal autonomy. While the Scottish public remains divided over independence, there has long been a majority in favour of devo max.

Scotland would win complete control over spending, borrowing and taxation, leaving Westminster in charge of only foreign affairs and defence - a degree of autonomy comparable to that enjoyed in Spain by the Basque Country and Catalonia. The economic relationship between England and Scotland would be profoundly altered. What, for instance, would be the consequences for English business of Scotland adopting an ultra-low rate of corporation tax? If judged successful, would fiscal autonomy be extended to England and Wales?

O'Donnell's article is a salutary reminder that these discussions need to be had now.

Update: Salmond has responded to O'Donnell's comments:

I have always regarded Sir Gus O'Donnell as a model civil servant, who has been extremely fair in recognising and respecting the democratic mandate of the Scottish Government.

Sir Gus is right to recognise the importance of the constitutional issue, and the SNP Government are up for the challenge

George Eaton is political editor of the New Statesman.

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Why Theresa May won't exclude students from the net migration target

The Prime Minister believes the public would view the move as "a fix". 

In a letter to David Cameron shortly after the last general election, Philip Hammond demanded that students be excluded from the net migration target. The then foreign secretary, who was backed by George Osborne and Sajid Javid, wrote: "From a foreign policy point of view, Britain's role as a world class destination for international students is a highly significant element of our soft power offer. It's an issue that's consistently raised with me by our foreign counterparts." Universities and businesses have long argued that it is economically harmful to limit student numbers. But David Cameron, supported by Theresa May, refused to relent. 

Appearing before the Treasury select committee yesterday, Hammond reignited the issue. "As we approach the challenge of getting net migration figures down, it is in my view essential that we look at how we do this in a way that protects the vital interests of our economy," he said. He added that "It's not whether politicians think one thing or another, it's what the public believe and I think it would be useful to explore that quesrtion." A YouGov poll published earlier this year found that 57 per cent of the public support excluding students from the "tens of thousands" target.

Amber Rudd, the Home Secretary, has also pressured May to do so. But the Prime Minister not only rejected the proposal - she demanded a stricter regime. Rudd later announced in her conference speech that there would be "tougher rules for students on lower quality courses". 

The economic case for reform is that students aid growth. The political case is that it would make the net migration target (which has been missed for six years) easier to meet (long-term immigration for study was 164,000 in the most recent period). But in May's view, excluding students from the target would be regarded by the public as a "fix" and would harm the drive to reduce numbers. If an exemption is made for one group, others will inevitably demand similar treatment. 

Universities complain that their lobbying power has been reduced by the decision to transfer ministerial responsibility from the business department to education. Bill Rammell, the former higher education minister and the vice-chancellor of Bedfordshire, said in July: “We shouldn’t assume that Theresa May as prime minister will have the same restrictive view on overseas students that Theresa May the home secretary had”. Some Tory MPs hoped that the net migration target would be abolished altogether in a "Nixon goes to China" moment.

But rather than retreating, May has doubled-down. The Prime Minister regards permanently reduced migration as essential to her vision of a more ordered society. She believes the economic benefits of high immigration are both too negligible and too narrow. 

Her ambition is a forbidding one. Net migration has not been in the "tens of thousands" since 1997: when the EU had just 15 member states and the term "BRICS" had not even been coined. But as prime minister, May is determined to achieve what she could not as home secretary. 

George Eaton is political editor of the New Statesman.