Scotch is an obsolescent adjective meaning "of Scotland". The modern usage in Scotland is Scottish or Scots, where the word "Scotch" is only applied to specific products, usually food or drink, such as scotch whisky, scotch pie, scotch broth or scotch eggs, and "Scotch" if applied to people is widely considered mildly pejorative. However, 'Scotch' is still in occasional use in England, and common use in North America.
From the early 19th century, however, Scots or Scottish increasingly became the preferred usages among educated Scottish people, Scotch being regarded as an anglicised affectation. By 1908, this was described by the New York Times as a "long-established… preference" (see article) In modern usage in Scotland, "Scotch" is never used, other than as described in the following paragraph for a short list of articles; it has gathered patronising and faintly offensive connotations ("frugal with one's money"), and a non-Scot who uses the word in conversation with Scots as a description of them may find this a good test of their courtesy. The use of "Scots" and "Scottish" is not altogether consistent; but in many words and phrases one or the other is normally used: there is a certain tendency for "Scottish" to be used in more formal contexts.
In modern current British usage, in England as in Scotland, the general term for things from or pertaining to Scotland is Scottish. Scots is used for the Scots language and Scots law, although one increasingly hears it used of people and organisations, especially in newspaper articles. Scotch remains in use only for products such as Scotch broth, Scotch beef, Scotch egg. One cynical joke is that Scotch can be used only for things which can be bought, such as whisky, eggs and politicians. 'Scotch terrier' was once one of these legacy uses, but has increasingly been replaced with Scottish terrier.
Scotland was one of the first countries in the world to introduce compulsory education for all children in 1872 (England introduced it in 1880). The Scottish school system was placed under a "Scotch Education Department" with offices in London. In 1918, as a result of objections from within Scotland, the department was moved to Edinburgh and renamed the Scottish Education Department. This reflects the linguistic preferences of modern Scotland.
John Kenneth Galbraith in his book The Scotch (Toronto: MacMillan, 1964) documents how the descendants of 19th century pioneers from Scotland who settled in Southwestern Ontario affectionately referred to themselves as Scotch. He states the book was meant to give a true picture of life in the Scotch-Canadian community in the early decades of the 20th century.
Galbraith's use of the term Scotch is revealing in demonstrating the usage of a Canadian speaking about his own community; and certainly his use of the term is not pejorative. This is an example of how older uses of words and forms continue in communities of expatriates broken off from their original roots, and could well indicate that it is the native Scots who have changed the usage.
That the use of "Scots" is the modern preferred use in all levels of society in Scotland is not in doubt, but occasional use of "Scotch" in varieties of the Scots language continues with terms such as Scotch and English (a game), Scotch fiddle (Itchiness), Scotch mile and ell (measures) and many other examples (see the Scots Dialect Dictionary compiled by Alexander Warrack M.A. (1911) republished by Waverley Books 2000). There are other good indicators that the use of "Scotch" has been "whitewashed out" and become a shibboleth. Early versions of dictionaries produced in Burns' wake in the 19th century had titles such as "A Dictionary of the Scotch Dialect of the Lowlands" and modern place names now written as "Scots" e.g., Scotstarvit and Scotscalder existed in previous incarnations as "Scotch". Scotch Corner survives as a place-name in England.
The use of 'Scotch' and 'Scots' in the law is interesting. In a reminiscence on his early training as an advocate in Edinburgh, Sir Walter Scott describes the law as "Scotch Law" some four times and as "Scots Law" just once. By the 1840s other writers are using "Scots Law", and this usage is now standard (although not universal) world-wide. Scots law reports in the nineteenth century show frequent judicial usage of 'Scotch' as referring to people; by the turn of that century, and since, practically no examples (other than by English judges) can be discovered.
In 1965, the historian A. J. P. Taylor, wrote: "Some inhabitants of Scotland now call themselves Scots and their affairs Scottish. They are entitled to do so. The English word for both is Scotch, just as we call les français the French and Deutschland Germany. Being English, I use it. Preface to English History 1914–1945