UK starts the game with territories worth 28 IPCs. If they lose UK (6) and Scotland (2), they are down to 20. That’s really not all that much. That income might also be reduced somewhat if we leave z106 alone (i.e. now there will be ships coming to Canada FROM Africa and middle east). Also, some of their income would go to build a minor IC for Ontario if they want to mobilize troops instead of expensive naval and air units.
Given that Neutral Blocks may turn out to be a major pro-axis change (i.e. vulnerable Caucasus), I would go for Option B if all the complicated sea zone changes are removed. This makes it easier to play too. So I am going to put that up as Option C. Anyone is welcome to suggest other options so please feel free.
OPTION C.
UK Europe government in exile
The first time London is captured by an axis power, the capitol of UK Europe moves to Quebec, Canada. The axis power that captures London seizes all IPCs currently held by UK Europe. The United States and Soviet union immediately join the Allies if they are not yet at war. Beginning at the Collect Income phase of its next turn, and as long as the UK government is in exile, it will collect income for all UK controlled territories on the Europe map. The government in exile may mobilize units only in Canadian industrial complexes.
Also, the first time London is captured by an axis power, unless Scotland is axis controlled, it will become a pro-allies neutral territory with a standing army of 4 infantry, plus any UK land units present in Scotland at the time London is captured by the axis.
Once per game, at the Collect Income phase of a turn when the UK government is in exile and London has been liberated, the Government in exile may return to London; or it may choose to remain in Canada. When it returns to London, the UK Europe government will continue to collect income for all UK controlled territories on the Europe map and on the following turn it may mobilize units in any UK controlled industrial complex on the Europe map.