Leader: The Union is under threat but the Tories and Labour aren’t listening

While Westminster is fixated on the EU, Scotland is moving ever closer to independence.

In his first conference speech as Conservative leader, David Cameron memorably told his party that it had to stop "banging on about Europe". The events of the past week prove that it did not take his advice. Unemployment is rising and growth is falling but Tory MPs have chosen this moment to reopen the debate about Britain's membership of the European Union. They seem neither to care nor to remember that their party's last two prime ministers were destroyed by divisions over Europe. As Karl Marx observed, history repeats itself, "the first time as tragedy, the second time as farce".

Mr Cameron was right to impose a three-line whip on his recalcitrant backbenchers but he must share the blame for the record rebellion. He has consistently indulged the fanatical Eurosceptics in his party, withdrawing the Conservatives from the mainstream European People's Party and perpetuating the myth that EU regulation is to blame for Britain's growth problems. His refusal cogently to explain the benefits of EU membership has encouraged the perception that there are none.

The debate over Europe has obscured a far more significant constitutional development. Largely unnoticed by Westminster, Alex Salmond has been advancing his strategy for independence. As the Scottish National Party leader told the SNP conference in Inverness, the referendum ballot paper will contain two questions: the first on full independence and the second on fiscal autonomy or "devolution max". Aware that he may not be able to win a majority for the full break-up of the Union, Scotland's First Minister is hedging his bets.

But talk of devolution max as an agreeable compromise disguises what a bold step it would be. 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? It is these sorts of questions that Westminster must begin to debate.

In the meantime, it would be hubristic to dismiss Mr Salmond's chances of winning full independence. The SNP has amassed a £1m war chest and the polls are moving its way. A ComRes survey published on 15 October showed that 49 per cent of Scots now favour independence, with just 37 per cent opposed. The Scottish Lib Dem leader, Willie Rennie, posed the question: "What if devo max got 99 per cent Yes and 1 per cent No in the vote, while the independence option got 51 per cent Yes and 49 per cent No?" But Mr Salmond has confirmed that a slim majority for independence would overwrite a large majority for devolution max.

Labour and the Conservatives, currently leaderless in Scotland, have struggled to articulate a coherent alternative to independence. So unpopular are the Scottish Tories that Murdo Fraser, front-runner for the leadership, has pledged to disband the party and establish a new centre-right grouping if he wins. Labour, which for so long assumed that its hegemony over Scotland was permanent, remains dazed after its second defeat at Holyrood, though some in the party are beginning to think imaginatively about how to respond to the nationalist threat.

Henry McLeish, the former Labour first minister, has called for the party to embrace devolution max as a "serious alternative to independence". The political calculation is that fiscal autonomy would leave Mr Salmond less able to offer the panoply of benefits - free university education, free NHS prescriptions and free personal care for the elderly - on which SNP support rests. Indeed, as its own creator now concedes, the "Barnett Formula" for allocating public spending gives Scotland an unfair advantage over the rest of the UK.

When the SNP completed its extraordinary victory last May, Mr Cameron vowed to defend the Union with "every fibre" in his body. However, many in his party, which has held just one seat in Scotland since 1997, do not feel the same way. For the Tory right, an independent England - economically liberal, fiscally conservative, Eurosceptic, Atlanticist - is an attractive prospect. The United Kingdom, one of the most successful multiracial, multi-faith, multinational states the world has ever known, remains a cause worth fighting for. Yet, over the past weeks, fixated by the EU, the Conservative and Unionist Party seemed less aware of this than ever. And Labour remains complacently quiet.

This article first appeared in the 31 October 2011 issue of the New Statesman, Young, angry...and right?