At least that's over with.

Next Battle for U.K.: Europe

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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The U.K. government's panicked reaction to Scotland's flirtation with independence ensures that the repercussions of that referendum will reverberate throughout British politics to the May 2015 election and beyond. By threatening to bar Scottish lawmakers in Westminster from voting on issues deemed to affect England alone, as well as promising the Scottish parliament more control of the region's tax and spending, Prime Minister David Cameron has shifted the domestic debate.

Speakers at the opposition Labour Party's annual conference in Manchester have clearly spent the past three days rewriting their remarks to take account of the vote which, from one standpoint, saw 45 percent of Scots voting to go it alone. In some ways, a Labour conference (it's my second) is a surreal experience in time travel; a trade-union leader opened a speech today by quoting a Russian revolutionary, addressed the audience as "comrades," and went on to win warm applause for pledging to introduce "socialist change." Another delegate drew enthusiastic and widespread cheers for proposing that a Labour administration should take the recently privatized Royal Mail back into public ownership. It's all a bit 1970s.

The current composition of Parliament leaves Labour vulnerable to Cameron's threat to classify certain issues as out of bounds to Scottish members of parliament; that would cost Labour 41 votes in Westminster, whereas the Tories have only one Scottish seat. With English voters a bit miffed at the Scottish threat to divorce, Labour leader Ed Miliband will have to walk a fine line between appeasing those sentiments without hobbling his own party's political power.

The Labour Party is struggling to market itself to the electorate, as Britain's economic recovery steals its thunder. Ed Balls, who would become the party's Chancellor of the Exchequer if it won power next year, knows that opinion polls consistently show voters regard the Conservative party as a more trustworthy steward of the economy. His cheap insults against "millionaires" and hedge funds, which he told the audience have benefited from tax cuts, were applauded; when he leavened that message with a common-sense observation that the retirement age might need to rise in the future, a couple of boos rang out in the hall. The Labour delegates are keen on a higher minimum wage and more free child care; their arms fold and they grimace when Balls talks of "tough fiscal rules" and "balancing the books."

Europe may turn out to be Labour's most promising battleground, an arena of public policy in which it is genuinely united, in contrast to the Conservatives. Labour can unequivocally back continued U.K. membership in the European Union, with the mostly Europhile Scots still safely part of the U.K., and offer a coherent position on the membership debate and any potential referendum on the issue. Cameron, meanwhile, is the prime minister who almost lost the union. He must now placate the euro-skeptic wing of his party, especially with Nigel Farage's UK Independence Party, Britain's milquetoast version of the U.S. Tea Party, seducing the more right-wing elements of the electorate with its anti-EU, anti-immigration rhetoric.

With Cameron promising to echo increased powers for Scotland with more devolution for the rest of Britain, Labour has a chance to seize the initiative by promising policies to empower cities such as Manchester and reduce the London-centric bias of British decision-making. Listening to a Tory conference -- this year's begins in Birmingham next week -- is reminiscent of the glory days of the BBC World Service; regional accents remain the exception rather than the norm, whereas the Labour speakers reflect the English language in its full patchwork of dialects. Labour, though, will need to be braver in sanctioning real change, such as transferring government departments away from London, rather than promising endless consultations.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net