Scotland faces its toughest decision

The MSPs elected next month will not be able to take on more powers. But it is recognised that a breakthrough for pro-independence parties at Holyrood would provide some mandate, however ill-defined, to challenge Westminster to give up more of the powers it holds over Scotland - and ultimately all of them.

For most of those three centuries, the fundamental questions were rarely put because the key answers were beyond dispute. Through the reach and power of the British Empire, Scotland was part of a single nation that had unparalleled economic, political and military clout. Net government spending flowed north, at least until North Sea oil arrived.

What has changed? The decline of the British empire, for a start. Imperial preference gave its members a trading advantage. The European Union now provides open and equal access to the world's biggest single market, with countries ranging in size from Germany to Malta.

There are those who argue true independence requires Scotland to get out of the European Union as well as the United Kingdom, and cite the successful examples of oil-rich Norway and cod-rich Iceland. But for 19 years the Scottish National Party has placed its vision of independence inside the European Union, however many compromises of autonomy that might require.

That was the most significant of several decisions that have effectively removed the threat of isolation behind barbed wire along the border; an image that used to accompany so many visions of Scottish independence. The debate has now returned to those questions that challenged Scotland's legislators in 1707. The easiest one to deal with, at least for those who favour independence, is what place Scotland would have in the world.

The globalising economy is creating mighty new power blocs and nations, yet small nations are proving nimble and adept at handling the challenges. Scotland could seek to emulate the growth rate and immigration example of Ireland, helped by the low business taxes that bring multinationals flocking to Dublin. Like Norway, it could stash away much of its oil wealth in a vast trust fund, providing dividends long after the oil runs out. Like Finland, it could quickly turn around economic weaknesses, unleash innovation and skills, and build global companies.

Such examples are open to challenge. None of northern Europe's smaller nations have made their achievements without pain, and there was delay and stagnation before the difficult decisions that put them where they are now.

The second question is how Scotland's economy could fare if the country became independent. Better, say nationalists. The contrast is not only with those neighbouring small nations, notably Ireland, but also with Scotland's long-term growth rate. Its trend is below the rest of Britain, with recent signs suggesting it could be picking up pace slightly.

The trickiest question is about the cross-border flow of money. In 1707, legislators were as interested in their own bribes as in England's lump sum to help clear up the financial black hole left by the Darien scheme, Scotland's adventure in attempting to found a colony in what is now Panama.

There are several "black holes" now being alleged against those who favour independence. One concerns the costs of SNP policies at Holyrood, even if it did not move on to independence. A bigger dispute is whether and to what extent Scotland benefits from a north-bound cross-border flow. Labour says removal of the "Union dividend" would leave an £11.2bn gap, but the SNP says the process by which that figure was reached is flawed. With a large share of North Sea oil revenue, that number would fall - but Labour argues that, even then, removing Westminster's subsidy would still leave Scotland deep in the red.

The SNP concedes that the current balance of government tax revenue to spending is hardly in a rosy surplus. But it counters that borrowing against deficits is something the Treasury does for the UK much of the time. It then argues that, if Scotland had the opportunity to boost its economic growth rate, tax revenues would grow out of financial difficulties - with Ireland an example yet again.

In a statistical battle in which voters cannot be expected to adjudicate, or even understand, economists and business leaders have become a sort of jury. The economists are split, as they tend to be. There is qualified support for the methodology behind Labour's £11.2bn deficit finding. But eminent supporters of independence ridicule a Labour case based on proving its own failure to get the economy and tax revenues growing faster, and stress the dynamic effect of what could be if Scotland went its own way.

The anti-SNP argument is being most stridently pursued by Labour, while the Tories and LibDems have recently opened the door to the possibility of other options that stop short of the United Kingdom breaking up. Both want to build a cross-party consensus on adding powers to Holyrood, with the crucial decisions around tax-varying.

That is being driven in part by a growing debate in England about the unbalanced basis of devolution. Scots MPs are influencing unpopular decisions in England, while the same decisions are not being imposed on Scotland - and it is assumed in the English debate that it subsidises Scottish services. So the decision on independence could be decided not only by Scots: the rest of the UK could quicken the pace.

Professor James Mitchell, of Strathclyde University, has watched the economists, businessmen and politicians develop what he says is "a much more nuanced debate about independence; more a multi-dimensional form of independence than in the past." He adds: "I don't think the SNP is anywhere close to winning the argument, but whereas it used to be alone, now it is Labour that looks more out on a limb, trying to make the case that the Best Small Country in the World is a basket-case".

Labour has strewn more than just statistics in the way of independence. There is doubt about how a referendum vote for separation would be greeted at Westminster. Would an English-dominated parliament simply accept Scots' demands, or exact a high price in the divorce proceedings?

And what about disentangling the extensive tentacles of the British state: for instance the armed forces, the railways, the BBC, the embassy network and the driving licence agency? How much time and effort would be taken up?

Joining the European Union may not be that easy either. It has never seen one of its member states split, and the Spanish and Belgians have reason to discourage the idea. The French might even need a referendum on Scottish accession. And what about the rest of the United Kingdom, which, it could be argued, would represent a new member state too?

If Scotland retained sterling, could it adjust its economy to its needs and pressures when key decisions were still made at the Bank of England? If it joined the euro, those decisions would then be made at the central bank in Frankfurt, and what kind of independence is that?

If inside the EU, what then? How much independence is there for Britain now, let alone for a Scotland that had to compromise in its negotiations on full membership?

Everything could go smoothly on each of these questions. But independence involves hard-headed analysis of the figures, as well as several leaps of faith. When Alex Salmond makes the case, assuming a smooth transition is perhaps the boldest leap of faith of them all. What the parties say

LABOUR The current range of devolved powers are adequate, and have the potential to be more effectively used.

SNP Independence for Scotland, within the EU. This should be subject to a referendum within four years, which would mandate Holyrood ministers to negotiate a split with Westminster. Retain sterling as currency at first. Favours membership of the euro if Scots vote for it in a referendum.

CONSERVATIVE It is time to review Holyrood's powers, drawing in different parties and civic Scotland. Some argue the Scottish Parliament should have more taxation responsibility to balance spending powers. Others, including Annabel Goldie, are unpersuaded, fearing a weakening of the UK's bonds.

LIB DEM There should be more powers for Holyrood, so long as Scotland remains part of the United Kingdom.

A federal solution would also give more powers to regions of England, including a basket of tax powers.

A commission should look for the best balance of solutions.

GREEN Pro-independence, as a means of bringing power closer to the people, and helping to create a more localised economy.

SSP Also pro-independence, as a means of making Scotland a socialist republic (assuming that England is unlikely to opt for that).

SOLIDARITY Once again, in favour of independence with a similar overall aim to the SSP, ie making Scotland a socialist republic.