MALCOLM BRUCE The SNP's one-seat margin over Labour offers no mandate for independence. Nearly two-thirds of those who voted supported pro-Union parties. The new administration is walking on eggshells. By the same token, Gordon Brown, as a Scottish, pro-union Prime Minister, must not overreact to provocation by the SNP.

This includes abolition of the graduate endowment, prescription charges, setting aside Nice (National Institute for Clinical Excellence) recommendations and offering Northern Ireland students the same benefits as Scottish students in Scotland while denying them to English students.

Examples of overreaction by Westminster are the deal with Libya over prisoners and the refusal to transfer council tax benefit payments to the Scottish Parliament with the introduction of local income tax and possible further threats to squeeze the Scottish executive's finances.

The SNP dismisses the benefits Scotland receives from being part of the UK. Labour fails to understand the dynamics of devolution and the need for further reform.

The SNP argues that with oil revenues Scotland could cover all its needs and more; Labour retorts that Scotland has a huge deficit.

On the dynamics of independence the SNP writes a rosy script. Labour predicts hardship, misery and failure.

Neither wants the transparency that would let us know where we stand and lays the foundation to discuss where we may be going.

The block grant plus Barnett formula cannot be the basis for the long-term funding of a real parliament, even a devolved one. Each tier of government should have access to an appropriate share of the tax base.

Let's start at the bottom. Our day-to-day services - health, education, police, transport, cleansing etc - come from local agencies: councils and health trusts.

Taxes raised in the areas they serve are far greater than the income they currently access directly. Why not allocate National Insurance raised in each area directly to the health authorities? Why not make income tax truly local and allocate a large part of it direct to the local council? Let's assign local taxes for local services.

This would reduce conflict between local government and the centre, which would still provide grants to ensure a fair distribution between rich and poor communities.

The Scottish Parliament's dependence on the block grant would be reduced by assigning a share of the remaining income tax revenue, customs revenues and other taxes. The Westminster government would then have appropriate revenues for its direct responsibilities. This achieves a fairer balance between different tiers of government, greater transparency and a clearer understanding of which areas are contributing and which benefiting overall. That is fiscal federalism.

But relationships between and within different parts of the UK do not just depend on money. American author Arthur Herman writes: "By surrendering her sovereignty the first time in 1707, Scotland gained more than she lost. She has to be careful that, in trying to reclaim that sovereignty, she does not reverse that process." Quite.

So what would we lose if we left the Union? Well, probably the least quantifiable but most significant impact is that the stage on which Scots could perform would shrink dramatically.

We would no longer be British citizens with access to the UK's 224 overseas posts. Scottish universities would no longer share in the British Council's worldwide activities. We would lose the influence the UK has as a big player in the EU and UN.

Scots would no longer be eligible for the influential careers many have pursued in public and diplomatic service, and job movements in the public sector across the border would inevitably diminish.

Nationalists may respond that EU laws will protect us but that is an admission that independence doesn't mean what it says on the tin.

That doesn't cover all the changes. We would have to construct our own welfare state and external relations. This would be at higher unit costs than the UK.

We would no longer influence England's direction of travel. England's Conservative majority might extend its European semi-detachment to our disadvantage.

If Cameron's Tories cannot live with Sarkozy and Merkel's Conservatives they may quit the EU, leaving them free to discriminate against the Scots.

Breaking up the UK would greatly weaken our combined influence in the world and diminish all of us. Yet Alex Salmond's posturing smacks of prime ministerial pretensions.

In appointing an overstretched part-time Scottish Secretary, Brown misunderstands the challenge. We need vision for a reformed UK which, if denied, could breed separatist support both sides of the border.

We need a new Constitutional Convention that can deliver a modern Union that assigns taxes to the different tiers of govern- ment, offers a partnership fit for this century and defeats small-minded separatism wherever it is coming from.

That is something on which Liberal Democrats would work with the new Prime Minister to deliver.

  • Rt Hon Malcolm Bruce is MP for Gordon and president of the Scottish LibDems.