The referendum on Scottish independence is an existential political moment. If the yes vote wins, it will mark the end of the arc of modern British history that began its upward trajectory with the Act of Union in 1707. The corresponding fall of the British state that began with decolonisation and deindustrialisation will be complete. It will be RIP to Britain as we have known it.

The English don't begin to recognise the profundity of the consequences. The pretensions and constitutional arrangements of the rump UK will suddenly look very flyblown and pre-modern, thrown into sharp relief as Scotland sets out to write a constitution that reflects the people's 21st-century values and the canons of good government.

Notwithstanding constraints the Scottish National party has yet to recognise, Scotland will be attempting to create the kind of economic and social settlement that has worked in Scandinavia and Germany. Meanwhile, England, perhaps leaving the European Union in a second landmark referendum within three years, will be locked in a diminished future determined by the minority prejudices of a wing of the Conservative party and Ukip.

Whatever else, the putative break-up of the UK could not be described as a success story. Across what remains of the British establishment – City boardrooms, the court of the Bank of England, the president's committee of the CBI, the chiefs of staff, permanent secretaries, the Inns of Court, Oxbridge common rooms – already the question is being privately asked: are the British state and society safe in the hands of the modern Tory party and its media acolytes?

The fiasco of a Scotland trying to break away, however unsuccessfully, would crystallise concerns, especially if followed by an exit from the EU, about our collective readiness to continue with the decaying state structures and accompanying corrupt political culture that delivers such self-damaging results. The Westminster and Whitehall system, and all that hangs on it, would not survive unreformed for long.

For without Scotland there is no Britain; the country is crucial to these islands' history and destiny. After all, it was Scotland's challenge to Charles I that triggered the collapse of the Stuart kings' attempt to rehabilitate pure monarchical sovereignty, the English civil war and ultimately the compromise settlement between parliament and crown. This was legitimised by Scotland joining the new state in 1707, which in many fundamental ways has survived to this day. Could the SNP and its wily leader, Alex Salmond, be about to trigger similar shock waves?

It is an extraordinary achievement to be eight months away from a referendum whose outcome is widely reckoned to be very close run. Increasingly, some of the more reflective and energetic elements in Scottish society want no part of a political order that delivers them too much of Thatcher, Cameron, Osborne and Farage – and too little of politicians and ideas that reflect more mainstream Scottish and European values. The brutally honest account of growing inequality, faltering investment, innovation and exports, detailed in "Building Security and Creating Opportunity", the report supporting the SNP's case, has to my knowledge never been rivalled by any arm of the British government.

But the SNP lacks the courage of its convictions, which ultimately is likely to cost it the referendum victory it craves. It is ever more obvious that it wants the best of both worlds – to recast its relationship with England in a way that can seem to amount to self-governing powers within a federal Britain, but at the same time to win sufficient autonomy to call itself independent.

Scotland can thus keep the pound, the Queen, the BBC and the Bank of England, so underwriting its gargantuan and fragile banking system. Cautious Scots can be reassured: independence will not hit their wallets. But Scotland can also join the EU and Nato as an independent state, write its own constitution and build an economy and society like Sweden's or Denmark's and so put the English in their place. Underneath the rationalism of the SNP, along with its purported high values, bubbles some atavistic and unlovely hatred of its southern neighbours.

Mark Carney, governor of the Bank of England, last week in a speech in Edinburgh underlined the ambiguity of the SNP's position. The SNP claims airily that it can decide on its currency and arrangements for monetary policy, and what it has chosen is not to create its own currency but to retain the pound in a currency union with England and a seat on the Bank of England's monetary policy committee.

My view is that instead it should create its own central bank and currency and peg it to the euro. Trying to have its cake and eat it has led the party into a deadly trap. For, as Carney explained, England cannot accept a currency union with Scotland on these terms, especially as Scotland boasts a banking system with loans 12 times its GDP – nearly twice as large as Iceland's in 2008. It would have to be backed by a full banking union and a banking union – for economies as integrated as England's and Scotland's – works only if backed by a fiscal and monetary union. No English politician could dare risk a run on English banks precipitated by a loss of international confidence in undercapitalised, semi-bankrupt Scottish banks, nor could England risk its debt being downgraded because of Scottish economic policy.

In other words, the Scottish government would be in a weaker position to spend, tax and borrow than it is now. It could not launch the ambitious social programmes it has in mind, or develop the kind of financial and investment system to create a Nordic economic and social model it says it wants. Nor is there any indication what innovation, investment and corporate governance systems the SNP proposes. Worse, there is zero chance that Belgium or Spain would agree to admit a country in a full banking, monetary and fiscal union with England into the EU as an independent state. It would be like giving membership to Wallonia or Catalonia.

If I were a Scot, I would be sorely tempted by the prospect of proper independence but not the damaging halfway house that is on offer, which would leave my country worse off. There is, though, an attractive alternative: to use the SNP as a battering ram to create a more federal Britain with Scotland as the principal beneficiary.

If the referendum is lost but still with a substantial yes vote, that will be the inevitable result – and one that will trigger huge change in both countries. The SNP will have done Britain a great service: paradoxically kept these islands together by giving them a 21st-century, federal and more democratic constitution. Scotland will have proved again that it is central to Britain's destiny.

• This article was amended on 2 February 2014. In the original the SNP was described as the Scottish Nationalist party.