Federations collapse from the stupidity of their leaders rather than the bolshevism of their members. The United Kingdom is no exception. It was pieced together in the 18th century from the half of the British Isles that the Normans had failed to conquer and assimilate. It began to disintegrate when the Irish had had enough of inept English government. Now the Scots are reaching the same conclusion, and up to a point the Welsh.

The SNP's Alex Salmond indicated in the Guardian this week that he wants a dramatic new autonomy for Scotland: far more than the coalition's modest fiscal reform now before parliament, which offers some discretion on income tax and the retention of stamp duty. Salmond wants a Scottish referendum on either independence or a more plausible option B for economic "devo max" or "independence lite". This would embrace full delegation to the Scottish parliament of taxation, welfare and domestic government. London would be left with the monarchy, foreign affairs and defence, much like the Basque country. For all practical purposes, the Westminster parliament would become the English parliament.

There is a clear head of steam behind Salmond's demands, which are spreading across the so-called Celtic fringe. The government of Northern Ireland, under the eerie power-sharing of Protestants and Catholics, is moving further from the mainland and closer to Ireland proper. That its deputy leader, Martin McGuinness, should plausibly run for president of what claims to be all Ireland is a symptom. There is talk of merging trade promotion and corporation tax on an all-Ireland basis. Wales, a country that has never ruled itself in modern times and was a reluctant devolutionist, is seeking similar fiscal autonomy to Scotland – a commission on which was conceded by the Welsh secretary, Cheryl Gillan.

The speed of this long retreat from England's "first empire" may be slow, but the line of route is unmistakable. London's response is manic. The union has become as drenched in political correctness as once was the empire. Like Margaret Thatcher and John Major before him, David Cameron declares his readiness to defend the union "with every single fibre that I have". As for discussing England or Englishness, it is considered "un-British". England is close to being a banned word at Westminster, its adherents crypto-fascists, football hooligans or, at very least, co-religionists with Celtic nationalism.

The union has long been asymmetric. It was a product of military conquest, unequal treaties and marriages of convenience. Had it not been for Edward I, Cromwell, the Victorian Church of England and Margaret Thatcher, a degree of harmonious assimilation might have been won. Yet the foolishness with which London governed its domestic empire lost and then partitioned Ireland, enraged Scotland, and roused even the somnolent Welsh from apathy. When administrative delegation became the fad at the end of the 20th century, devolution gained a traction from which it has not looked back.

The proportion of Scots supporting independence has grown to almost 40%, and the SNP's electoral support in May was just short of 50%, crushing the Tories and Lib Dems into virtual oblivion. Salmond's mandate north of the border is near absolute, while Cameron's is negligible. Scottish government has taken hold. Modern Edinburgh feels more like Dublin than it does a "British" city. Yet at every turn London schemes to balk autonomy. The new fiscal devolution is no devolution at all. Danny Alexander, a Scots control freak and Lib Dem minister, is fighting to deny Scotland the tax-raising power of an English parish council. Cameron last week chided Salmond for being a "feartie", for not putting an immediate referendum on full independence, suspecting it would fail. Yet Cameron opposes a devo- max option as that might succeed.

It is hard to see what disadvantage there is to London in devo max. It could save the London exchequer as much as £10bn a year in subsidies. With oil revenues declining there would be little compensation to the Scots there. Scottish representation in an English parliament would disappear, greatly assisting the Tories, to be replaced by some new "confederal" upper house. In return for real autonomy, London could negotiate a seriously tough deal with the Scots. So why not?

Most small new countries go through a difficult period of readjustment, but the iron law of separatism is that national pride and the exhilaration of independence trump money. Nor is that all. The evidence is that small-is-beautiful brings in confidence and investment, hence the revived economies of Slovakia, Slovenia, the Baltic states and, for a while, Ireland. Independence, in whatever degree, is a rejuvenating, galvanising force. Economists who declare that Scotland would be impoverished by autonomy see only a static, not a dynamic, model. It is the same size as Denmark and New Zealand. Why should it not be as prosperous?

The truth of this whole affair is that a mature democracy should be able to handle devolution without the present hysterics, bombast or power fixation. There are a hundred ways of forming and reforming unions, from Swiss cantons to Catalonia, from Britain's crown dependencies to the provinces of India. Each requires different constitutional arrangements, just as the UK now needs one urgently to respond to the changes in accountability brought on by devolution. It is absurd that Scotland, Wales and Northern Ireland should still be represented at Westminster as if they were counties of England.

The only constant in the debate is the aversion of the governing elite in London to ceding control to the Celtic periphery. England's leaders remember nothing and learn nothing. Just as their opposition to Irish political emancipation in the 19th century made Irish separatism inevitable, so the Tory treatment of Scotland in the 1980s – "piloting" the poll tax there – gave an elixir to nationalism. The same Tory federalists who champion a UK parliament with every drop of their blood are anti-federalists in the setting of a wider Europe. Those who oppose the break-up of their union go to war for the separatist Kosovans, Bosnians and Kurds.

All unions, like all empires, have their day. Britain's global empire has gone, to be replaced by a commonwealth. The disintegration of England's island union began when Ireland departed a century ago and is now progressing in the same direction. Salmond's devo max is not a rerun of Bannockburn. It is a reasonable step down the road being taken by free peoples across Europe. In responding to it, England should grow up.