Michael Wickens's picture
Affiliation: 
Cardiff Business School & University of York
Credentials: 
Professor of economics

Voting history

Economic Consequences of an Independent Scotland June 2014

Question 1

Do you agree that that Scotland would better off in economic terms as an independent country?

Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
This will depend primarily on the conduct of fiscal policy. My understanding of the main reasons for seeking Scottish independence is to be able to increase public expenditures which are currently constrained by UK fiscal transfers to Scotland. To be sustainable in an independent Scotland this would require raising tax revenues. Even assuming that all North Sea oil tax revenues are impounded by Scotland - which would apparently be a precedent in the redistribution of national natural resources - this would not raise sufficient additional revenues to pay for the higher public spending. It follows that higher taxes would need to be imposed on the Scottish tax payer. Failing to do this would result in rising Scottish sovereign debt which, due to a higher risk premium, would cost more than at present. Higher public spending is also likely to cause higher inflation. This is where using sterling has relevance. Higher inflation implies that Scotland would steadily lose competitiveness if it retains the pound. This is why the Treasury has argued against forming a single currency with Scotland: it doesn't want higher Scottish inflation to disrupt RUK monetary policy. If Scotland goes ahead and uses sterling anyway but without representation on the MPC it gets the worst of both worlds. Using sterling without a sustainable fiscal policy would ultimately therefore result in Scotland losing the very independence it seeks. If Scotland introduces its own currency then it will be steadily devalued unless Scotland has a sustainable fiscal policy. So if fiscal policy is unsustainable Scotland will almost certainly be worse off. If higher public expenditures are matched by higher tax revenues then the issue is whether the balanced budget multiplier is greater or less than unity. The evidence suggests that in a fully employed economy it is well less than unity. Once again, therefore, Scotland would be worse off. This may be why the SNP is stressing the importance of North Sea oil revenues - even though it is likely to be a chimera - and downplaying higher taxes. Finally, if Scotland gives up on having much larger state expenditures than at present then why bother with independence in the first place?

Euro Area Deflation and Risk for UK Economy May 2014

Question 2

Do you agree that a deflation in the Euro area (as defined in Question 1) would pose a considerable risk to the UK recovery?

Answer:
Disagree
Confidence level:
Very confident
Comment:
The likelihood of negative eurozone growth is small and so poses no significant risk to the UK economy

Question 1

Do you agree that there is a significant risk of a sustained deflation across the Euro Area in the coming two years?

Answer:
Agree
Confidence level:
Confident
Comment:
Although activity in the eurozone is picking up, it is doing so slowly and is still a drag on UK export growth

Prospects for Economic Growth in the UK April 2014

Question 2

Do you agree that, in the wake of the financial crisis, any downward adjustment to the expected average annual long-term growth rate of the UK economy is likely to be by less than 0.25 percentage points?

Answer:
Disagree
Confidence level:
Confident
Comment:
History suggests that average growth could easily deviate by more than 0.25% as average growth since 1970 has been 2.7% with a 95% confidence interval of 1.8% to 3.6%. This assumes that growth fluctuates in the future as in the past and in the next years we are not free from the business cycle.

Question 1

The long period of slow or negative growth might imply that there is a substantial output gap in the UK economy.  Do you agree that there is currently a larger output gap than the OBR estimate to the extent that the shortfall in output relative to capacity is 3% or greater?  

Answer:
Disagree
Confidence level:
Not confident
Comment:
Based on time series analysis the output gap is greater than 3% but based on the aggregate production function it is about 1%

Pages