The constitutional debate remains polarised between two extremes, status quo Unionism and independence. This helps the SNP but makes little sense for Labour.

Labour has made no serious defence of the Union and shown little interest in promoting a pro-“New Union” strategy, that loosens the constraints of the Union to provide greater autonomy and sharing of sovereignty with the Scottish Parliament.

This is not just a Scotland issue; it is fundamental to the future of the Union. This reality has to be accepted in London, where the stakes for the future of the Union are high. To deny the Union is in need of reform may contribute to the constitutional crisis that UK Labour seeks to avoid. The main threat to the Union will not be the advance of Nationalism but failures at the heart of Unionism and misjudgments by the Unionist parties. Labour's dilemma is how to reconcile traditional political views and values with the new Scottish perspective.

Labour has to put new life into the Union and confront the SNP and independence. Westminster still fails to appreciate the seriousness of the situation as the government in Scotland consolidates its early success and builds towards further constitutional change.

The key feature of the first ten years of devolution has been Labour's failure in Scotland to accept a different political identity and to develop a new political culture. A new strategy makes sense and would appeal to a Scottish electorate supportive of the SNP government's populism, but wary of independence.

This strategy should also reflect the political and constitutional changes taking place in Europe by reviewing and reforming, not repealing, the Treaty of Union and the Scotland Act.

The Calman Commission, set up by Scotland's three Unionist parties to examine the issue of further powers for Holyrood, is the place to start this work. A debate should open up in Edinburgh and Westminster on the Parliament's fiscal and taxation powers - should the devolved Scottish Parliament be more responsible for raising the cash or part of the cash it spends?

There could be a debate on immigration policy being devolved, and control of the environment and energy. Individual states within Germany have a say in all things European: should Scotland? The whole question of the governance of broadcasting in the 21st century also needs to be addressed.

The “New Union” strategy should also make a powerful statement about nationality, not nationalism; identity, not isolationism; and diversity, not division. It should embrace the idea of shared sovereignty and shared power between Edinburgh and London; encourage England to develop its own political voice; and promote the positive benefits of some form of federation for the Government of the UK.

These ideas could transform Labour's prospects in Scotland and renew the debate at Westminster. Timing is important: a grudge-and grievance mentality is developing at Westminster about devolution and anti-Scottish sentiment is gaining traction. The debate at Westminster is political and marginal. Superficial solutions are being offered to substantial constitutional problems.

There are clear benefits for Labour in this strategy for more autonomy. The SNP is running Scotland in a competent and popular way, but, despite that, support for independence is not increasing. The public are clearly open to other options for our constitutional future which Labour could be better placed to exploit. Across Europe, nationalist governments or coalitions are elected at regional and provincial level, but their populations are not inclined to embrace independence or separation. These nationalist parties, however, can become the default political choice and provide a defence against the excesses of national governments. Scots, like other Europeans, are becoming politically astute and Labour needs to understand this if it is to win the battle of who is best placed to serve Scotland's interests.

This is the uncomfortable reality of a nation in transition. But change, however urgent, will not be easy.

The home rule debate has rumbled on for nearly a century and there are still those in Labour who believe that an embrace of nationality and identity cuts across their centralist-socialist beliefs and undermines the primacy of the nation state. This is now an outdated view, but Labour has remained hostile or dismissive towards devolution and the importance of more decentralisation and less dependency. Labour in Scotland is reluctant to be seen as uncompromising in the defence of Scottish interests for fear this will be misunderstood by UK Labour as selling out to nationalism.

Labour should take the lead in the debate on Scotland's political future. Only by doing so will Labour be better placed to offer an alternative to independence, as well as providing effective opposition to the SNP.

Henry McLeish was First Minister, 2000-2001