Martin Ellison's picture
Affiliation: 
University of Oxford
Credentials: 
Professor of economics

Voting history

Addressing UK public finances after the mini-budget crisis

Question 3: Given the desired amount of deficit reduction, the Autumn Statement on balance:

Answer:
Should have relied more on tax increases
Confidence level:
Confident
Comment:
It will be very difficult for the government to deliver many of the proposed cuts in government spending, as they relate to essential services that people expect to be provided. It is not possible to repress public sector wages without severe cuts in the quality of services provided across many government departments. With the credibility of cuts in question, I support tilting any desired fiscal consolidation towards more taxes. However, I think it should not be income taxes that bear the brunt of the adjustment. Instead, I would like to see better property taxes (it is crazy that council tax is based on 1991 valuations – we can surely do better) and environmental taxes (e.g. carbon taxes).

Question 2: Relative to the Autumn statement, would the UK be better off reducing public debt

Answer:
Neither faster nor slower
Confidence level:
Not confident
Comment:
The danger of tightening fiscal policy during a recession supports the back-loading of fiscal consolidation and an almost glacial paydown of the debt, but with the credibility of the UK government on the line it is important to demonstrate commitment to reducing the debt in a reasonable timeframe. Whether that commitment is credible is an open question – it is though clear that in all cases that the UK would be better off with a credible government.

Question 1: How necessary was it for the UK government to lower its deficit through tax increases or spending cuts in November 2022?

Answer:
Desirable
Confidence level:
Confident
Comment:
The credibility of the government took such a hit with the mini budget of September 2022 that a show of fiscal responsibility was necessary to start the slow and painful process of rebuilding the government's reputation. This needed to happen, independent of fundamentals.

Assisting Households Facing Rising Energy Costs

Question 3: Should a windfall tax be used to (fully or partially) finance support to households?

Answer:
Yes
Confidence level:
Confident
Comment:
The management of the UK War Loans offers evidence that we do not need to worry too much about the incentive effects of a windfall tax on energy companies. War Loans were taken out to fund the Great War at an interest rate of up to 5%. When interest rates fell to 2.5% in 1932, Neville Chamberlain announced that the government would exercise its right to call the loans, offering either cash or to continue the loan at 3.5%. Although unexpected, this did not reduce the appetite of investors to lend money to the government. The lesson is that a windfall tax is appropriate when there’s a problem big enough to threaten the stability of the whole economy.

Question 2: Which of the following is the best way to address the impact of rising energy costs on household finances?

Answer:
Conditional/targeted transfers
Confidence level:
Confident
Comment:
It’s a toss-up between conditional/targeted transfers and price caps based on energy use. Given the urgency of the situation, there’s a strong case for a speedy uplift in conditional and targeted transfers to the low-income households that are really squeezed by increases in energy prices. Price caps based on energy use have more appeal in the longer run, although there are better ways of redistributing income and wealth. Fixed-sum transfers to all households is a terrible policy.

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