Saturday 4 January 2014

"Who wins the economic argument will win the referendum"

So the FT have asked a varied panel of economic experts about their predictions for 2014. One of their questions to the panel was
How would a yes vote for independence affect the Scottish economy and the rest of the UK in 2014?
Here's some of their responses...

My suspicion is that for Scotland to have to maintain its own fiscal and monetary institutions would be very onerous; it is also possible that Scotland would see some of its finance industry migrate south of the border. I would also be concerned that independence could cause skilled labour to leave the country. - Richard Jeffrey, Cazenove.

There would be great concern that a notably stable group in the UK had taken leave of its senses. Such a vote would leave the UK on the edge of a new spiral of falling confidence. [...] The Yes vote would be a disaster for the UK as a whole not just for Scotland.  - Prof. Nick Bosanquet, Imperial College.

It is going to make a lot of foreign companies think twice about investing in the UK and competitor economies in Europe are not going to be slow in pointing this out to potential investors. - James Knightley, ING.

Higher taxes on income would push many wealthy individuals and some companies they work for south of the border, harming Scotland’s economy. More interventionist policies also appear likely and this could easily stifle the creative capitalistic tendencies that ultimately drive growth. - Philip Rush, Nomura.

It is difficult to see how an independent Scotland bound by the Bank of England would work. Not only would the end of the Union damage the valuable economic and social integration across the nations involved with untold consequences, but the raft of economically incoherent policies being proposed by Alex Salmond would be disastrous for Scotland specifically. - Ruth Porter, Policy Exchange.

Oil revenues are likely to fall over time and someone will have to bear the costs of decommissioning, so it is not the one-way bet which Mr Salmond is telling the Scots. A fiscally independent Scotland will – at least initially – be dependent on monetary policy set in London suggesting no guarantee of monetary and fiscal co-ordination. - Peter Dixon, Commerzbank.

It would reduce the rate of growth of Scottish GDP due to lower capital investment and increase the share of Scottish GDP spent by its government on welfare and administration. It would give Scotland an even more unsuitable monetary policy than at present as monetary policy would be set for UK which would have a higher rate of inflation than at present due to the removal of lower Scottish inflation from the present UK average figure. It may also result in higher migration to UK. - Prof. Mike Wickens, York University.

I think it would substantially disrupt the Scottish economy and Scottish business confidence as economic policies in Scotland seem to be essentially socialist in approach. - Patrick Minford, Cardiff Business School.

It would create huge uncertainty, which is bad for investment, in particular, but demand in general. - Tony Dolphin, IPPR.

It’s hard to be positive about a Scottish yes vote economically, in spite of oil revenues, which is the whole case in favour. In fact, viable Scottish economic independence is a bit of an oxymoron, as the terms of secession would reveal, so what’s the point? - George Magnus, adviser to UBS.

A yes vote for independence for Scotland would likely damage the Scottish economy. - Peter Westaway, Vanguard.

With an economy so dependent on oil, it will have to live with the fact that overall it will be on a slow growth path, given that official projections of oil and gas output are flat over the medium-term. - Philip Shaw, Investec.

It would not be good for either, especially the Scottish economy. - Prof. Chris Pissarides, LSE.

On economic grounds it does not make sense. - David Owen, Jeffries.

An independent Scotland would find itself more constrained on fiscal policy as implicit subsidies from south of the border would cease. England would probably be the main beneficiary of a vote for Scottish independence! - Andrew Sentance, former MPC member.

It would create major uncertainty about the viability of the country as an economic unit. Growth would be hurt. - Brian Hilliard, Société Générale.

For Scotland it creates narrow energy dependence and uncertainty. - Malcolm Barr, JPMorgan.

On fiscal matters the negotiating position of an independent Scotland is weak, and as a result arrangements if they keep Sterling will be tough. - Prof. Simon Wren-Lewis, Oxford University.

It would be a big economic shock and would produce a huge number of uncertainties. The subsequent untangling could take more than a decade to complete and would be a significant drag on business confidence, perhaps sufficient to knock the recovery off course. - David Goodhart, Demos.

If there were a Yes vote, there would be an utter panic – with the Scottish fund managers heading for the border in droves. - Andrew Hilton, Centre for the Study of Financial Innovation.

This would be an unmitigated disaster for Scotland - Gavyn Davies, Fulcrum Asset Management.

A disaster for Scotland, a shrug of the shoulders for everybody else. -Stephen King, HSBC.

I believe the process would be extremely disruptive for both Scotland and the UK, due to the unanswered questions surrounding monetary policy and the division of the UK’s existing national debt. I also believe a “no” vote could be good economically for the UK - Ryan Bourne, Centre for Policy Studies.

If Scotland was to vote “yes” the issue may not be whether Scotland keeps the pound but whether the pound keeps Scotland. One lesson of the euro area crisis is that if markets sniff a risk of currency redenomination in a currency union, cross border capital flows can verge on the economically catastrophic until or unless the authorities state they’ll do “whatever it takes” to ensure that redenomination doesn’t happen. - Neville Hill, Credit Suisse.

It would have a negative effect on Scotland and the UK. Scottish debt would face a larger risk premium because of being a smaller and more volatile economy (as it is resource based). - Prof. John van Reenen, Centre for Economic Performance.

A Scottish “Yes” to independence would clearly drive some businesses south – people too in all probability, often the most able ones - Jamie Dannhauser, Lombard Street Research.

Scotland might be more damaged. It has 5mn of the 63mn inhabitants of the UK and is more reliant than the rump-UK on a declining source of income: oil. And the post split monetary arrangement do not seem well worked out. - Rob Wood, Berenberg Bank.

Rather unfortunate then, that Soor Ploom Sturgeon chose the same week to opine "I firmly believe who wins the economic argument will win the referendum"...

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