Could the SNP do a deal with the Conservatives – and sell it to the Scots?

Could the Conservatives do a deal with the SNP? This is the subject of some interesting speculation in Conservative circles, notably on the influential ConHome site. There is an historical precedent for this, involving Alex Salmond's political hero, the 19th-century Irish nationalist leader Charles Stewart Parnell. But it is not a happy precedent.*

Before the 1885 general election, Parnell opened up a channel of communication to the leadership of the then-caretaker Conservative government via the Lord Lieutenant of Ireland, the Earl of Carnarvon. The two met privately, and no other witnesses were present, but Parnell assumed that Carnarvon had been licensed to meet him, as he had, by the Tory prime minister, Lord Salisbury. They ranged over a number of issues, but at the heart of the conversation was a deal to create an Irish parliament, coupled with a steep reduction in Irish representation at Westminster. In today's terms, this deal would be 'devo-max' for Scotland in return for 'English votes for English laws' or a major cut in the number of Scottish MPs in the House of Commons. (In the 19th century, public spending was not the issue: the main bone of contention was whether an Irish parliament could erect protective tariffs against British goods in order to give space to Irish industry to grow.)

After the conversation, Parnell instructed his supporters in England and Scotland to vote for Conservative candidates at the general election in November 1885, in the belief that Salisbury would then carry home rule through both houses at Westminster. Unfortunately, Salisbury welched on the deal – and in the meantime Gladstone's son, Herbert, let it be known that his father had committed to home rule for Ireland, letting the Conservatives off the hook. Only later, during the second reading debate of the first Irish home rule bill in 1886 did Parnell reveal that he had been engaged in private discussion with a cabinet minister in the previous Conservative government, albeit that he did not name the source (though speculation would later force Carnarvon to come clean). It would remain a contested and controversial episode ever thereafter.

Salisbury's rejection of home rule for Ireland drove the Irish nationalists into an embrace with the Liberals which lasted until the end of Herbert Asquith's minority government. The issue of home rule dominated British politics for the best part of 40 years, first splitting and weakening the Liberals, and then helping to shut the Conservatives out of power in the Edwardian era.

Now, should the SNP achieve a breakthrough at the general election in May of the kind currently predicted by the polls, it is likely that a large contingent of their MPs will be returned to Westminster for as long as Scotland remains in the UK. If the history of Irish nationalism teaches us anything, it is that the aftershocks of the political earthquake in Scotland will reverberate at Westminster for a long time. The territorial question will become a major axis on which British politics turns.

The prime minister's decision to rule out a third term may have irreparably weakened his ability to negotiate with other party leaders after the election. (Although the most benign interpretation of his remarks must be that he is signalling to any prospective coalition partner that he can be trusted to serve a full term.) But, personal authority notwithstanding, would a grand bargain between David Cameron and the SNP be possible anyway?

Some Conservatives argue that Scotland should be offered a version of 'devo-max' or full fiscal autonomy. That is, Scotland should raise the taxes it needs to pay for its public services, and return a contribution to the UK government to cover the costs of funding defence and foreign affairs. At a stroke this arrangement would end the Barnett formula and the justification for Scottish MPs voting on English legislation, including finance bills. Conservative hegemony in England would be secured, and Scotland could largely govern her own affairs.

For its part, the SNP could say that it had not so much propped up a Tory government at Westminster, as brought to an end the possibility of Conservatives at Westminster governing Scotland at all. It could argue that it had discharged its patriotic duty to Scotland to secure the largest possible measure of self-government short of independence.

Unfortunately, the fiscal arithmetic for such a deal no longer stacks up. Even if you were prepared to end risk-pooling in the UK, counter-cyclical fiscal transfers and UK-wide contributory benefits, the gap between what Scotland raises in revenue and what it spends is such that the SNP would be hard pressed to sell full fiscal autonomy to the Scottish public. It would either require major cuts to spending and substantial tax rises, or wildly implausible rates of economic growth to close the fiscal gap. The IFS has estimated that Scotland's budget deficit would be 4 per cent of GDP higher than for the UK as a whole – or £6.6 billion in cash terms – in 2015/16, if it was fiscally autonomous.

This is not a prospectus that the SNP wants to take into the 2016 Holyrood elections. It wants to be able to say that has prevented austerity in Scotland and achieved a further devolution of powers beyond those agreed in the Smith commission, not that it did a deal with the Conservatives to entrench major spending cuts. It could only sell full fiscal autonomy if it secured a commitment from the UK government to maintain the Barnett formula for a lengthy transitional period, and Cameron would be hard pressed to get that past his 1922 committee.

Hence, the SNP is focussing on a set of economic policy demands – such as the devolution of corporation tax and capital gains tax, employer national insurance, the national minimum wage and energy regulation – to form the basis of its post-election negotiations. It could probably more readily get these from a Conservative government than a Labour one. Yet put together, even this major set of powers does not look like it would be sufficient for the SNP to argue that it was ending rather than sustaining Conservative government in Scotland.

So the prime minister is more likely to play the part of Salisbury than of Gladstone. But the SNP will not then disappear from the British electoral scene, any more than Irish nationalists did at the end of the 19th century. They represent the aspirations of a large and growing number of Scottish people. The future of the union, and Scotland's place within it, will continue to shape British politics for many years to come. The question is which of the two main parties will recognise that strategic fact and act upon it – and whether they can remain united if they do so.

*This history is recounted in a forthcoming pamphlet for IPPR by Professors Iain McLean and Jim Gallagher of Nuffield College, Oxford.