David Blanchflower: Poor are written off by Romney and Osborne

Economic Outlook: The next round of spending cuts is about to come. Who is watching out for the meek and mild?
  • @D_Blanchflower

So Mitt Romney put his big foot in his mouth again, as he has done so often recently. Last week it was Libya, this week Palestine, and along the way he insulted half the US electorate. His campaign now appears to be in freefall.

This time he stirred things up by saying that he was writing off 47 per cent of US voters who were "victims" and didn't pay taxes as they would never vote for him. He also made it clear he is against redistribution: the poor are on their own.

Well, actually he didn't exactly say it publicly, he said it behind closed doors at a fundraising dinner with a few well-heeled supporters at the residence of a wealthy donor, but was caught out because one of the waiters apparently filmed him on their iPhone.

Mr Romney had to backtrack a little when it was pointed out that this actually includes lots of Republican voters. Many Americans receive help from the federal government in the form of social security and Medicare (which they pay for through payroll taxes), veterans' benefits (which they often obtain through service in the military), college loans, food stamps or other support.

But Mr Romney hasn't backed down, despite being lambasted by critics including a number of well-known Republican supporters such as Peggy Noonan and Bill Kristol. Even Paul Ryan said he didn't agree with Mr Romney's comments. Dumb and dumber.

That brings me to George Osborne, who apparently has also written off a big chunk of the British electorate, who presumably will also never vote for the nasty party. Recall this is the guy who cut the top rate of tax for his rich pals, but introduced pasty and granny taxes. There have been all those cuts in frontline services, with so many more to come, big job cuts, and a pay freeze in the public sector. Now Slasher has a plan to squeeze the pips out of the poorest of the poor by freezing the increase in welfare benefits, by ending the automatic annual increase in benefits in line with inflation. That really is going to solve the country's fiscal problems at a stroke, I don't think. I don't know how he sleeps at night. Not a great idea to write off the poor and the disabled.

The fact that the Government is relying heavily on monetary policy to provide stimulus means it has essentially abandoned regional policy, especially given that it has abolished Regional Development Agencies. Plus a disproportionate chunk of public spending cuts are occurring north of the Watford gap. So I am rather surprised that there hasn't been more public outcry in places like the North-west, the North-east and Yorkshire and Humberside, where unemployment rates are 9.1 per cent, 10.4 per cent and 9.8 per cent respectively, compared with 6.3 per cent in the South-east. The North-east is the only region where inactivity rates are over 25 per cent. House price declines have also been greatest in these areas where there is little Tory representation.

So what exactly is the Government doing to help the poorer regions? As far as I can see, close to zippo. The tiny enterprise zones have only a minor impact. It's probably not a good idea to write off big chunks of the country.

On top of this, the Government has decided to take on workers' rights, including moves announced by Vince Cable to make it less costly to fire people. This is also ideological, as there is no evidence at all to suggest that labour market inflexibility in the UK is constraining growth; in fact, exactly the opposite is the case. David Davis and Liam Fox have absolutely no basis on the evidence to argue that de- regulating the labour market is a problem or that removing workers' rights would bring significant benefits. Wages have been flexible downwards, and firms have hired temporary workers and reduced hours at will. The Coalition made a big deal of the fact that the World Economic Forum in its Global Competitiveness Report 2012-2013 moved the UK up the world competitiveness rankings to 8th from 10th the year before. We were beaten by, in order, Switzerland, Singapore, Finland, Sweden, Netherlands, Germany, and the US. What the Coalition failed to mention was that the UK ranked 5th in labour market efficiency behind only Switzerland, Singapore, Hong Kong and Canada. Of interest is that the countries that Mr Cameron and Mr Osborne frequently compared us to when they imposed austerity rank somewhat lower: Greece is 133rd and Spain 108th. The Dominican Republic is ranked 107th. Not a great idea to write off the workers. No wonder there were rumblings of discontent at the TUC last week.

Then there was Sir John Major's claim of green shoots. Not according to the Bank of England's agents, whose report suggested no evidence of any improvement. They reported that the level of investment would be broadly unchanged over the coming 12 months. Export growth continues to slow, reflecting weakening conditions throughout the euro area. Manufacturing growth had slowed further, and was broadly flat on a year earlier. Construction output continued to fall, largely due to cuts in work for the public sector, along with some weather-related disruption.

The cost of borrowing was creeping up as lenders passed on higher funding costs, although many banks were preparing to make use of the Funding for Lending Scheme. Employment intentions indicated little job creation in the private sector over the coming six months. Consistent with that, the minutes of the MPC's September meeting suggested signs of "some modest underlying expansion. Set against that, the more forward-looking components of the business surveys were weaker, and the rise in energy prices would mean that the squeeze on real household incomes would not ease further in the short term". So little sign of green shoots any place. Borrowing in August hit a record £14.4bn, pushing Slasher's ex-growth strategy to cut the deficit even further on to the rocks.

The next round of spending cuts is about to come. Who is watching out for the meek and the mild? Certainly not the Coalition here, or Mitt over the pond.