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

Voting history

UK House Prices and Macro-Prudential Policy July 2014

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Question 1: Do you agree it is time for more robust policy action to prevent a build-up of excessive housing-related risk?

 

 
Answer:
Agree
Confidence level:
Very confident
Comment:
There are several risks in current policy. One risk is excessive house-price inflation in the South East, but less elsewhere at present. Another is creating the conditions of the US sub-prime crisis by encouraging borrowing on the cheap that is not sustainable when, as expected, interest rates are raised before long.

Economic Consequences of an Independent Scotland June 2014

Question 2

Assuming that Scotland becomes an independent country, do you agree that the UK government's position of ruling out a monetary union is in the economic interests of the continuing UK? 

Answer:
Agree
Confidence level:
Confident
Comment:
The deciding issue is the experience from the euro zone. As Scotland cannot be prevented from using the pound, a crucial issue is whether or not to give an independent Scotland representation and a vote on the MPC thereby risking an inappropriate monetary policy for RUK. However, already UK monetary policy is inappropriate outside London and the South East of the UK and is only sustainable due to net fiscal transfers to the regions, something that Scotland would no receive. A second issue is that transactions costs in trade between RUK and Scotland would rise and harm RUK. This was given heavy emphasis when European Monetary Union was first discussed. A third, and probably the most important, issue is whether Scottish banks or a profligate Scotland could cause a debt crisis again though issuing sterling debt. To avoid this markets would need to price Scottish debt appropriately. Overall the argument is finely balanced but, in view of the eurozone's experience, I come down on the side of it being against RUK's interest to have a monetary union with Scotland.

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

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