Let's say that Elizabeth decides against sending troops north of the border in 1560 (her OTL intervention was uncharacteristically bold of her, so it shouldn't be too hard to make her adopt a more cautious policy), and as a result the Catholic faction in Scotland manages to defeat the Protestants and save Scotland for Holy Mother Church. Assuming that Elizabeth still doesn't have any children, and that James VI is still next in line to the throne, what effects would having a Catholic heir to the throne have on Elizabethan England? I can see two main ways this might play out:
1.) James is removed from the line of succession in favour of a Protestant. This would have the advantage (from Elizabeth's point of view) of keeping England Protestant after her death. On the other hand, James would now be an obvious magnet for anybody dissatisfied with Elizabeth or whomever her chosen successor is (I'm not sure who the nearest Protestant relative of the Queen's would be, but no doubt someone will say in the comments), and would be very well-placed geographically speaking to make a bid for the throne after Elizabeth dies. Scotland would also make a convenient base for underground Catholic priests as well as a refuge for Catholics seeking to escape Elizabeth's religious policies. This could result in Elizabeth redoubling her persecution in order to try and stamp Catholicism out altogether, or else (perhaps more likely) taking a more conciliatory approach and essentially turning a blind eye as long as the Catholics don't try and cause trouble.
2.) James isn't removed from the line of succession. This would obviously make the re-Catholicisation of England a likely prospect, which Elizabeth would hardly have welcomed. On the other hand, she had gone along with Henry's, Edward's, and Mary's various religious policies, so she was hardly above showing some religious flexibility if it was in her interests to do so. In this scenario, I expect that Elizabethan persecution of Catholics would be considerably less severe than IOTL, both because there wouldn't be much point if the next monarch was going to be a Catholic anyway, and because most Catholics would probably just sit tight and wait for the new king, both at home and abroad (I doubt
Regnans in Excelsis would be promulgated in this TL, for example). IOTL England didn't become majority-Protestant until well into Elizabeth's reign; ITTL this might not even occur, both because of the lessened scale of the persecution and because more people would probably be inclined to hedge their bets in order to please James when he becomes king ("See, your Majesty, my local underground priest can vouch that I attended secret Mass every week, what a good co-religionist I am of your Majesty, just something to bear in mind when you're next deciding whom to appoint to important positions in court"). This might also exert a more conservative influence on the Church of England; maybe its doctrine would be based on the
Six Articles rather than the Thirty-Nine Articles, for example.
Anyway, that's enough of my thoughts on the matter. Which scenario do you guys think would be more likely, and what would the ramifications be?