In world-cup England, where the red-on-white flag of St George flaps from every window, car and pub railing, a little wind of Scotophobia has sprung up. The Scots, generally tolerated by the English as prickly but comical, have suddenly become unpopular.

Some of the symptoms of Scotophobia are trivial. Others suggest real political problems emerging for the future. The English were genuinely hurt to hear that Scotland's first minister, Jack McConnell, was backing Paraguay against England in the first round of the world cup. Gordon Brown, the Scot who is chancellor of the exchequer and Tony Blair's designated successor as prime minister, was mocked for clumsy opportunism when he proclaimed that he was backing England.

Nobody believed he meant it. And nobody in England had taken him too seriously when in January 2006 his keynote speech to a Fabian Society conference on the "future of Britishness" talked of "celebrating a British identity that is bigger than the sum of its parts" and asked: "what is our equivalent of the national symbolism of a flag in every garden?"

A Union Jack on every British front lawn? That is so last century! The British flag is slightly naff these days. For the last ten years, between the Channel and the Scottish border, it's the cross of St George which has been making English hearts beat faster.

As Conservative fortunes revive under the leadership of David Cameron, the Tories concentrate on undermining the prestige of Gordon Brown, their next adversary. His Scottishness has become a target. On 24 June, the sturdily Tory Daily Telegraph published an opinion poll on attitudes to Scotland's supposed privileges in the United Kingdom. Its results were much to Tory taste.

The English form almost 90% of the UK population, and no fewer than 70% of them thought that the rest of Britain "subsidised" Scotland unfairly (only 12% of Scots agreed). Over half the English respondents thought that Scottish MPs at Westminster should not be allowed to vote on matters that affect only England and Wales, given that Scotland now has its own parliament which controls education, health and other domestic matters in Scotland.

This allowed the Telegraph to suggest that there was something unjust about letting an MP representing a Scottish constituency – as Gordon Brown does – to become the head of a British government. In a vitriolic leading article, the paper accused the Scots of being "trapped in the squalor of dependency" and "reliant on handouts". The poll showed that the English were becoming aware of the anomalies. "Until recently, an English voter, hearing Gordon Brown's Fifeshire accent, would simply have said to himself 'Labour'; now, he says 'Scottish'. The lopsided devolution settlement has created a sense that the Scots are having their cake and yet guzzling away at it".

Brown-baiting by the Tories is inevitable. Growing confusion grips the Labour Party as Tony Blair's reputation disintegrates, with no timetable for Gordon Brown to take his place in Downing Street. And yet there are deeper issues here, affecting the future of the increasingly ramshackle British state.

Scottish devolution – the restoration of a parliament after 300 years, with control over most internal affairs – did not lead on uncontrollably to the demand for full independence, as some feared (or hoped) that it would. But Scottish autonomy, as a new element in Britain's odd constitutional mix, has brought to the surface three unsolved and perhaps insoluble problems which lurk in the state's foundations. All interrelated, they are about centralisation, about the constitution and about the English question.

Neal Ascherson is a journalist and writer. He was for many years a foreign correspondent for the (London) Observer. Among his books are The King Incorporated: Leopold the Second and the Congo (1963; Granta, 1999), The Struggles for Poland (Random House, 1988), Black Sea (Farrar, Straus & Giroux, 1996), and Stone Voices: the Search for Scotland (Granta, 2003)

Also by Neal Ascherson in openDemocracy:

"From multiculturalism to where?"
(August 2004)

"Pope John Paul II and democracy"
(April 2005)

"Tbilisi, Georgia: the rose revolution's rocky road" (July 2005)

"The victory and defeat of Solidarność" (September 2005)

"Poland's interregnum" (September 2005)

"Victory's lost sister – the wreck of the Implacable"
(October 2005)

"A carnival of stupidity" (February 2006)

"Good Night, and Good Luck" (February 2006)

"Torture: from regress to redress" (March 2006)

"The case for pre-emption: Alan M Dershowitz reviewed" (May 2006)

A centralised state

Great Britain was founded almost 300 years ago, on 16 January 1707, through the treaty of union between England and Scotland. It is a multinational state, although a very asymmetrical one. It is also an archaic state. Its central principle is the absolute sovereignty of parliament, the ancient principle of royal absolutism which was transferred to parliament after the 17th century English revolutions.

This is why, in contrast to the rest of Europe and America, Britain has no formal constitution. The Enlightenment notion of a supreme law to which even an elected assembly is subordinate is quite alien to the British/English philosophy of power. So is the other Enlightenment principle of popular sovereignty, in which power resides with the people and is delegated upwards through democratic choices.

This explains why Britain cannot become a federation. It would mean giving parts of the state entrenched rights which parliament cannot override – abandoning the principle that parliament is absolute. Scotland and Wales were granted a devolved parliament and an assembly in 1997. But in theory – though it's almost unthinkable in practice – the house of commons could abolish either or both legislatures any day by a majority of one.

Political centralism has been suspended for Scotland and Wales. But fiscal centralism remains. Most European states with self-governing regions allow them some powers over taxation - the right to raise all or most of the money which the regional government spends. Britain does not. The Scottish executive (government) is financed by a block grant paid by the exchequer in London. All taxes are set, raised and distributed by Westminster, with the exception of the Scottish parliament's option to increase or reduce income tax by 3p in the pound – a right never used. This block grant is calculated by a mechanism known as the "Barnett formula", and it is this system which is now under attack.

In theory, the formula allots public spending to Scotland on a basis of population, which currently means that Edinburgh gets about 10.7% of the total spent in England. In practice, the Barnett formula takes some account of need – and Scotland, with its remote areas, poor public health and housing and areas of acute poverty is needier than England. The situation now is that public spending per head in Scotland is about £1,406 higher than in England.

This is seen as unfair "subsidising" by some regions of England, such as the depressed northeast or London itself, whose mayor, Ken Livingstone, loudly complains that money desperately needed in Britain's capital is being unfairly squandered on the Scots. The critics object that the "population" criterion of the formula has been lost, and that Scotland's living standards are now closing the gap with England's. They demand that the block grant should be recalculated on the basis of need alone – and reduced.

In Scotland itself, there has been a growing sense that the parliament needs more powers. In particular, a government which does not raise its own revenue but has to haggle and beg for money from elsewhere has a deficit in democracy and accountability. This is now leading to increased calls across the Scottish political spectrum for taxation to be devolved. The Steel commission report, produced in March 2006 by the Scottish Liberal Democrats, calls for "fiscal federalism", under which Holyrood (the Scottish parliament in Edinburgh) could set its own rates of income and corporation tax to finance its own programmes.

The Scottish National Party, seeking full independence, also wants taxing power transferred to Edinburgh. Even among the Scottish Tories, there are free-market fundamentalists who regard a government which spends but cannot tax as an outrage. Scottish Labour, however, remains opposed to change, seeing fiscal autonomy as tantamount to independence. And the treasury in London, led by Gordon Brown, regards the notion of differential tax levels in different parts of the United Kingdom as blasphemy against the sacred tradition of "unitary demand management".

The constitution

The second problem is constitutional – or parliamentary. At Westminster, Scottish MPs can vote on laws which only affect England – educational reforms, for instance. Sometimes (in the present parliament, for instance) such bills rely on the votes of Scottish MPs to get passed through the house of commons, even when the majority of English MPs is opposed to them. At the same time, English MPs cannot vote on Scottish education or health, because these are devolved matters reserved for Holyrood.

It's an anomaly, and it's unfair. But it arises because British devolution schemes are all lopsided. The English do not wish to have their own English parliament, to rank alongside the Scottish, Welsh and Northern Irish legislatures under the higher "federal" authority of a British parliament. There are grounds for this reluctance: the enormous population imbalance between England and the rest of the UK. Such a structure would be "asymmetrical" with a vengeance.

But while the Westminster parliament remains also the British parliament, then it's an anomaly the English have to put up with. Back in 1886, Gladstone's great home-rule bill for a devolved Ireland came to grief because so many MPs – including many of his own Liberals – refused to contemplate Irish MPs voting on English matters. The result was a century of rebellion, confrontation and bloodshed.

Now the old arguments resurface, yet again. The problem is being used as a weapon to embarrass Gordon Brown before he succeeds Tony Blair. But there is more to it than party advantage. In 2004, an attempt to circumvent these pressures by granting English regions devolved self-government failed; voters in the northeast (where the proposals were first tested) did not want it.

Since then, talk about creating an English parliament has revived, though still on the margins of politics. The Tories are reluctant to take up the idea, even though an English parliament would almost certainly be Conservative-dominated. Instead, they toy with the idea that Scottish MPs should be barred from voting on purely English legislation. This could have the weird result of a parliament with potentially two majorities: the Conservatives legislating for England, and a Labour government using Scottish and Welsh Labour MPs to impose its will on "British" matters such as defence, foreign policy or immigration. When is a government not a government?

Englishness

The third element in this confusion is the revival of "Englishness". The English public have never quite grasped the distinction between a state and a nation, or between Britain and England. But now, seven years after devolution began to operate in Scotland and Wales, there are signs that a discontented English nationalism is beginning to emerge.

The popularity of English flags means more than a passing outburst of football mania. Back in 1997, when vast crowds from all over England gathered in London to mourn the death of Princess Diana, it was striking that most of the mourners carried the St George's flag – the flag of the heart, perhaps – while Union Jacks were rare. Since then, although nothing like a coherent political movement has emerged, it has become common to hear complaints that "the voice of England" is being ignored and slighted, through supposed financial privileges given to the Scots or through the presence of so many Scots in Tony Blair's governments. Increasingly, individual politicians take up this grievance, especially on the right, and there is growing pressure on the Tory leadership to "stand up for England".

What will come of it all? At present, there is a Labour government in London and a Labour-led coalition ruling in Edinburgh. But there are Holyrood elections next year, and Westminster elections in 2009 at the latest. A decisive moment could arrive when Labour loses power at Westminster and a Tory government "down south" faces a Scottish government led by Labour or possibly the SNP.

David Cameron, as prime minister, would not take up the embryonic cause of a separate parliament for England. And at the last elections in 2005, the Tories – who have only one Westminster seat in Scotland – avoided challenging the Barnett formula. But Cameron in power might decide to cut back the block grant for Scotland, or to reshape the formula on the basis of need (a highly political criterion, as no objective way of calculating need exists), or to scrap it altogether. At the same time, he would come under great pressure to limit the voting rights of Scottish MPs – most of them Labour – in the house of commons.

This could lead to an English-Scottish confrontation, the first real test of devolution. At present, there is no great enthusiasm in Scotland for moving on to full independence, although about a third of the electorate have for many years told pollsters that independence is their preferred option. But a political collision over finance would sharply raise the Scottish political temperature. If the Scots feel that they are being cheated by an English Tory government they did not vote for, the demand for control over taxation and more powers for Holyrood could become very popular.

In a "normal" European country, this could be accommodated in a more decentralised federation (this month's endorsement of an "autonomy statute" for Catalonia, including recognition of its status as a "nation" and the granting of wider economic powers from the central government in Madrid, is an example). But Britain is not a normal state. Because of the archaic doctrine of parliamentary sovereignty (absolutism), there is no halfway house between devolution and independence. Reluctantly, the Scots may come to feel that independence is the simplest and least quarrelsome way to manage the relationship between Scotland and England – much as the Slovaks did in 1993, when the Czechs grew tired of making further constitutional concessions.

Almost three hundred years after the treaty of union, are we sliding towards a British version of that "velvet divorce"? The only British politician who has enough influence to tackle these problems in the next few years is Gordon Brown, the great Scot at Westminster. He has the intelligence for the task, but does he have the imagination or the courage? There is more at stake here than Brown's choice of football team.