The UK’s economic decline has plumbed new depths. After an unprecedented decade of wage stagnation and austerity, the inflation crisis has precipitated the largest decline in living standards in the postwar era. And it’s set to get worse.

The Bank of England’s (BoE) grim forecast on 3 November for two years of recession, followed by a paltry 0.75% in growth, was accompanied by the sharpest rise in interest rates in over three decades – pouring fuel on the recessionary fire.

New chancellor Jeremy Hunt’s autumn statement last week is likely to make matters worse, as he attempts to restore ‘fiscal credibility’ through spending cuts and tax rises in the wake of the ‘Trussonomics’ fiasco. That will only lead to further economic contraction, inevitably hitting the poorest hardest. Britain is in an economic doom loop of the Tories’ making.

All of this should make the case for Scottish independence – which suffered a major setback in the Supreme Court on Wednesday – even more compelling.

An independent Scotland as an escape pod from Tory rule will appeal to many people looking at their bills and struggling to decide between heating and eating. To those who can’t get an appointment with their doctor because the NHS is exhausted and understaffed. To a social care worker, or teacher, who is seeing their pay fall off a cliff in real terms. For large sections of Scottish society, especially the working class, there are good reasons to see constitutional change as a route to fundamental social and economic change.

SNP leader and first minister Nicola Sturgeon can rightly look upon the present crisis as an opportunity. But the Scottish independence movement also has problems, most of them very much self-inflicted. If not corrected quickly, these could derail a huge opportunity to seize the initiative.

Problem 1: ‘sterlingisation’

Last month, the Scottish government published ‘Building a New Scotland’, its economic plan for Scottish independence. The paper is filled with progressive-sounding ambitions for a “wellbeing economy”, but the currency regime it would impose on an independent Scotland – the use of sterling informally, a policy more widely known as ‘sterlingisation’ – would put Scotland at the mercy of the same bankers whose speculative attack on the Truss government led to its demise.

Sterlingisation would impose both a monetary and fiscal straitjacket on an independent Scotland from day one, tying it to the City of London and the BoE. With no alternative sources of public finance, the finance minister of an independent Scotland would have nowhere else to turn.

The problem is not just that public borrowing costs for a nation without its own currency would be higher, or that Scotland would have no control over its interest rates. In the event of a major crisis – such as the financial meltdown in 2008 or the coronavirus pandemic in 2020 – an independent Scotland might struggle to keep its head above water.

Why? Because one of the key roles of a modern central bank is to act as a financial backstop undergirding the government and wider economy in moments of financial panic. The G10 central banks have increased their balance sheets more than fivefold since the 2008 financial crisis through quantitative easing, acting as both ‘buyer of last resort’ and ‘lender of last resort’.

As buyers of last resort, central banks can fund government borrowing by creating new money to buy government bonds – as the BoE did during the pandemic. This reduces the cost of government borrowing and weakens the threat of a speculative attack on the currency. In 2008, the BoE was lender of last resort to the UK’s broken financial system, a policy widely considered to be essential to stop the total collapse of the country’s biggest banks.

Without currency sovereignty, neither of these essential monetary tools would be available to an independent Scotland. Instead, it might have to turn to the BoE or the International Monetary Fund for a bailout – as University of Edinburgh professor Iain Hardie recently argued. Hardie found it “almost impossible” for an independent Scotland to have delivered a similar furlough policy to the one implemented by the UK government at the height of the pandemic.

Indeed, the more ambitious public investment policies many of us would expect from an independent Scotland – to fund rapid decarbonisation, for instance – would also be off-limits, as sterlingisation would almost certainly impose severe fiscal constraints on the Scottish government.

‘Building a New Scotland’ says there would be fiscal and debt rules in an independent Scotland, but does not say exactly what they are. Given the imperative under sterlingisation to satisfy Scotland’s bond holders – the bankers in the City of London – one can imagine they will be stringent.

Every time supporters of independence denounce UK austerity and economic mismanagement, their critics will say that, under ‘Building a New Scotland’, an independent Scotland would have to do similar.

The plan is a liability, and one that is wholly unnecessary. Establishing a Scottish currency on independence day, using the transition period of at least 18 months to do all the work necessary to prepare for the currency’s introduction, is logical, crisis-proof and would provide the framework for an independent Scotland to take its own monetary and fiscal decisions.

The obvious question, therefore, is why is the Scottish government so resistant to this policy, especially since having a sovereign monetary policy is a prerequisite for EU entry under the ‘acquis’ rules? The most logical answer is that the SNP is being led by the polls, which suggest that most Scots want an independent Scotland to start life using Pound Sterling.

Aside from the fact that short-term politics dominating over the long-term health of Scotland’s economy is not very sensible, it’s important to recognise that the Scottish public has not been exposed to a full debate about the pros and cons of the various monetary solutions available; once Sterlingisation is exposed to the harsh light of a referendum campaign, it is unlikely to stand up well. Also, the SNP, by far the leading force in Scottish politics, has never fully embraced the case for a Scottish currency – in the absence of its confidence in the policy, it shouldn’t be surprising that the Scottish people aren’t sure about a Scottish pound either.

Problem 2: A potential Labour revival

The second risk to the SNP is the revival of the Labour Party. Keir Starmer now looks likely to be the UK’s next prime minister, and Labour, united and in power, could take the wind out of Scottish nationalist sails – especially if the public cannot differentiate between two fairly bland varieties of centre-left politics and takes the pragmatic option of choosing the one that is capable of replacing the Tories in government.

Indeed, Starmer has recently outflanked Sturgeon on a key subject. In September, he announced Labour’s idea for Great British Energy, a public-owned energy generation company. Sturgeon had proposed a similar, Scottish government-owned company back in 2017, but dropped the idea last year after one of the ‘Big Four’ accountancy firms, EY, was commissioned to scope out the idea and concluded that it might not be worth the bother – an almost pitch-perfect example of the problems of neoliberal governance.

The reason domestic heating costs in Scotland are so extortionate, despite the country’s abundance of cheap energy, is the design of the UK energy market, which fragments and privatises the sector into energy generation, distribution and the grid.

An energy-sovereign Scotland could drastically reduce its heating costs by bringing its energy system into public ownership and ending this fragmentation. A public energy system could then be repurposed to meet all the country’s domestic energy needs before exporting, while setting prices at a level that ensures no one is in fuel poverty (that is, heating bills less than 10% of household income).

Add in a massive home insulation and refurbishment programme to reduce energy demand, and Scotland would soon catch up with Norway as one of the cheapest countries for fuel bills while leading the world in decarbonising housing.

But such a vision would require a rupture with both the UK and the EU’s current energy markets, something the SNP is not willing to contemplate, even though both are now massively discredited. Sturgeon’s ideological commitment to “frictionless trade” and “open markets” is a restraint on the independence movement’s ability to project a clear alternative to Starmer’s bland centrism.

Problem 3: Indyref2 strategy

The final problem is the SNP’s strategy for securing a second independence referendum, aka Indyref2, planned for 19 October 2023.

After years of insisting the UK government wouldn’t dare reject the democratic will of the Scottish people for a referendum if voters backed the SNP at the ballot box, Sturgeon has had to tacitly accept that the UK state is not quite as open to Scottish democracy as she had made out.

She failed on Wednesday to win the support of the UK Supreme Court for another independence referendum, which means instead that the 2024 general election will be a de facto poll on the matter.

In an attempt to convince the Supreme Court that the referendum itself would not directly affect the British constitution, the Scottish government’s strategy had been to water down the meaning of an independence referendum and the authority a ‘yes’ vote would hold.

But now the Supreme Court bid has failed, things are even more uncertain. While the SNP and the Greens may be happy to claim that a vote for them is a vote for independence, the unionist parties will not fight the 2024 general election on the same basis. It’s very unclear how a majority of votes for the SNP and Greens would give the Scottish government the legitimacy to establish a new state, or whether Sturgeon – ever cautious – would dare to try such a manoeuvre. This ‘de facto referendum’ looks more like clever electioneering.

The alternative strategy is building a social movement to apply maximum pressure on the UK government and Labour to accept Scotland’s right to national self-determination. This will never be embraced because the SNP leadership has sought to distance itself from the wider independence movement, most notably the large ‘All Under One Banner’ demonstrations, which Sturgeon famously did not attend in 2019 and 2020. Pressure from below may have its limitations, but so do clever attempts from above to play the British judicial system and game the UK elections.

Two souls fighting for independence

‘Scotland After Britain’ – by James Foley, the late Neil Davidson and myself – was published in August. One of the ideas we wanted to convey in the book is that the Scottish independence movement contains ‘two souls’, which represent rival meanings, competing class interests and conflicting relationships to state power.

The first soul – ‘Independence from Above’ – wants independence to be a continuity (as much as possible) with the major institutions of economic and political power, and pursues it through official channels, shunning the role of social movements. The second soul – ‘Independence from Below’ – seeks a rupture with the present economic and political order as a means to transform Scotland. It emphasises the role of social movements to deliver political change rather than relying on political elites and institutions.

The response of the Scottish government to the dramatic political and economic events in the UK since the publication of ‘Scotland After Britain’ has only reaffirmed our conviction that these two souls exist, and that the overweening dominance of Independence from Above is a danger to the independence project. Not only in terms of winning a ‘yes’ vote, but in terms of creating a new country that can tackle Scotland’s endemic problems of poverty and inequality.

Independence from Below must find its voice and make itself relevant, and quickly.