We are entering the end game for this Parliament and so it is now time to focus on the policy horizon. In the run-up to the next election, the government’s pieces will be moved by our fourth Prime Minister since the announcement of the advisory referendum on EU membership in February 2016. The rapidity in turnover of political leadership tells us starkly that there are deep problems with our economic and social performance, relative to expectations and to that of our main trading partners. The overriding narrative is of a kingdom of nations that have taken a huge step backwards in international standing and in the fulfilment of domestic objectives. At this historic moment with the accession of Charles III, we are not this time faced with post-war reconstruction, industrial decline, the need to deregulate or the need to hitch our colours to the rise of the City. It is more a problem of how to bring the country and devolved nations together and aim for economic and social progress for all. That implies both broadening our regional focus and narrowing our gambit to what institutions and policies the UK needs as a small open economy in order to deal with a global economic situation we must take as given and no longer made in our image. No new IMF or World Bank would, for example, offer the UK a seat at the top table, which was certainly the natural order in the first half of the twentieth century.

This special issue of the National Institute Economic Review is being published at an unsettled and uncertain time for the United Kingdom. In June 2022, the First Minister of Scotland Nicola Sturgeon called for a second referendum on Scottish independence to be held in October 2023. While it is unlikely that the referendum will be granted by the UK government, current polling suggests the outcome of such a referendum would be too close to call. Eight years after Scotland voted 55%–45% to stay in the Union, independence remains a live issue, which raises fundamental questions about economic and governance arrangements between Westminster and the UK’s constituent parts.

In this paper we revisit the issue of currency regime choice for an independent Scotland using an international macroeconomic/ finance framework. Specifically, we consider the main competing proposals for currency choice with an emphasis on the SNP’s official policy of the informal use of sterling post-independence. We conclude that from a macroeconomic perspective this option is unlikley to be credible to international capital markets. The option that would be credible, and avoids the austerity associated with the choice of a fixed exchange rate option, would be a free float at least during the transition period of independence.

Trade issues lie at the heart of the two biggest constitutional challenges the UK has faced in decades: Brexit and Scottish independence. Brexit has demonstrated the economic importance of borders and led to renewed calls for Scottish independence. While there are a range of possible trading arrangements an independent Scotland could pursue, all of them involve economically significant change. In this paper, we describe Scottish trade patterns and review the range of options that a newly independent Scotland might have for its trading arrangements. We then model the relative economic importance of these different potential trading arrangements.

Brexit has both increased the momentum towards Scottish independence and complicated what it could mean in practice, especially if Scotland rejoins the European Union (EU). EU accession would re-open the flow of goods, people, services and capital between Scotland and other EU member-states; a corollary of this, however, would be new restrictions on movement between Scotland and its non-EU neighbours. Effective border management entails a variety of ‘at the border’ and ‘behind the border’ processes. As much as these would require dedicated infrastructure and trained personnel, they would ultimately depend upon reliable data/information and good communication among myriad agencies, including on the other side of the border. Fundamentally, the nature and form of the border controls would be determined largely by the relationship that an independent Scotland had with the remainder of the UK—and, principally, on the relationship that the UK develops with the EU.

The equilibrium size of a nation state is, in part, the result of a trade-off between the gains from scale economies in the provision of public services and the costs of applying uniform policy to heterogeneous cultural, institutional and geographical fundamentals. Changes in such fundamentals can thus place pressure on states to reform over time. We consider this dynamic state formation process in the context of Scotland within the United Kingdom. First, we review the recent research in economic history on the persistence and evolution of such fundamentals. Second, we consider the history of Scotland both before and after the 1707 Act of Union in the light of that broader economic history literature. We conclude with some implications of fundamental persistence for current debates on the place of Scotland within the United Kingdom.

The part of the UK fiscal framework which determines how UK government funding is allocated across the four home nations has undergone profound change since 2012, given tax and social security devolution. The UK government’s post-Brexit plans for regional development funding, state aid, regulation and trade negotiations have led to significant disagreements about the nature of the devolved fiscal and constitutional settlement. And the COVID-19 pandemic provided a major shock to a fiscal system with limited flexibility for the Scottish, Welsh and Northern Irish devolved governments. This paper reviews the changes and challenges faced during these reforms and policy shocks. We find that: tensions about reforms to funding arrangements reflect the inconsistency of principles guiding the reforms; that the UK government’s post-Brexit plans do reduce the policy autonomy of the devolved governments, but reflect powers central governments often have in even highly decentralised countries; and that temporary changes to rules and the nature of the COVID-19 pandemic prevented a subnational fiscal crisis, but that more systematic change may make the system more robust to future shocks. This suggests that a review of the principles underpinning the UK’s subnational fiscal and economic policies would be highly worthwhile.