THE CONSERVATIVE VIEW

Labour’s £28 billion spending pledge might have been a hostage to fortune.

But without it, their green plans are a fantasy.

February 8, 2024
William Atkinson

Today’s headlines suggest Labour are ditching their £28 billion pledge for green investment – their so-called ‘Green Prosperity Plan’. It has looked moribund for weeks.

Rachel Reeves – the closest thing His Majesty’s Loyal Opposition have to a fiscal conservative – did her best St Peter and refused to back the policy ten times in an interview, suggesting the figure could be abandoned entirely after the Budget. Other Shadow Treasury ministers have looked similarly uncommitted, as rumours of its scrapping abounded. Today is the day Labour finalise their draft election manifesto.

Then again, Keir Starmer told his party’s business conference that it remains in place. He went further when talking to Times Radio, saying the spending plans are “desperately needed”. Only a month or so ago, the Labour leader had said he is “absolutely up” for a fight with the Conservatives over-borrowing to invest. Has a split emerged between our next Prime Minister and Chancellor, with the Green Prosperity Plan caught in the middle?

Such a divide goes beyond Starmer and Reeves to a more fundamental question of what the next Labour government wants to achieve. Reeves wants to portray Labour as a party of discipline, going out of her way to promote her ‘fiscal rules’, hug close to business, and do her best impression of George Osborne. Recent pledges not to raise corporation tax or reinstate the cap on bankers’ bonuses are of a piece with that ambition.

After Jeremy Corbyn’s leadership, a self-flagellatory approach to protecting the public finances and embracing the private sector might have been the only way to publically restore Labour’s economic credibility with business and the markets, even if our dalliance with Trussonomics made that task much easier. But for many MPs and activists, fed up after 14 years of sitting on the sidelines, such prudence robs Labour of the opportunity to be truly transformative.

Why try and out-Tory the Tories? If a Labour government doesn’t believe in increasing government spending, what on earth is it for? That is the argument posited by Ed Miliband and his acolytes, champions of a form of green Keynesianism that they argue could both makeup for years of Conservative under-investment and jumpstart Britain’s sclerotic growth rates. It’s the ‘White Heat of Technology’ for the Extinction Rebellion generation.

It’s an approach to which Reeves once seemed sympathetic. After all, it was the Shadow Chancellor who first announced the £28 billion figure in her 2021 Conference speech. Claiming she wanted to be known as the first ‘green Chancellor’, she vowed to spend £28 billion for each year of the next Parliament. This was her ‘securonomics’ – an attempt to mimic Joe Biden’s Inflation Reduction Act on the (relative) cheap.

Yet Reeves had begun to backtrack within a matter of months. Shortly after a Daily Mail front page proclaimed that families faced a £1,000 a year bill for ‘Labour’s eco plans’, Reeves said the £28 billion wouldn’t come in Labour’s first year, but in the latter half of a five-year term. By October, that was by the Parliament’s end, and each pound of public investment would need three from the private sector.

Since then, Labour has only become more sceptical, with today’s announcement the inevitable breakup following a process of disillusionment. Starmer has blown hot and cold on the policy. It was missing from the party’s ‘campaign bible’ designed for prospective MPs to answer questions on the doorstep Finalising the manifesto has forced the final junking to take place ahead of a May election that Starmer still believes Rishi Sunak might call.

Labour’s fiscal hawks argue that the figure is a hostage to fortune. With the Government having so little else to run on at the next election, the fear is of a 1992-style ‘Tax Bombshell’ style campaign. They have been spooked by continual fearmongering by ministers, with Jeremy Hunt this week suggesting that the pledge would mean income tax rising by four per cent. Scrapping the pledge removes that attack line.

But getting shot of it also removes the last major point of division between the Conservative and Labour economic prospectuses. Welcome to Butskellism 2.0. As with swallowing the repeal of Clause IV under Tony Blair, Labour activists will be told this is the final sacrifice required to get the Tories out. CCHQ would claim Labour was lying. Would anyone care? Meanwhile, Starmer’s chosen deep state asset grumbles that it looks like a surrender to the Tories.

However, Sir Keir’s political cowardice isn’t the only reason why the policy has been diluted into insignificance. When Reeves announced the £28 billion figure, interest rates were at an all-time low of 0.1 per cent. They are now 5.25 per cent. Even the most Panglossian predictions about the course of inflation this year don’t have rates falling back to their Covid-era low any time soon.

Moreover, Sir Keir and Reeves have always been clear that the spending would only go ahead if it was in accordance with Labour’s ‘fiscal rules’. The Government’s self-imposed target is to have debt falling as a proportion of GDP over the next five years. Labour’s pledge is simpler, if less specific: to reduce national debt as a share of the economy. No time limit has been attached.

Hypothetically, Reeves could make clear that the £28 billion sits outside these rules. But every sign available suggests that Reeves aims to outflank Hunt on hawkishness. This could mean adopting the Government’s own timetable for debt reduction – as Gordon Brown did with government spending before 1997 – or setting an even more rigid schedule.

Hitting his target has caused Hunt to freeze public investment in cash terms across the next Parliament. Unless Labour breaks with his timetable, spending will shrink. The £28 billion pledge would have to compete with other priorities like schools and hospitals for a reduced pot of money. But if Labour do pledge more spending, the Tax Bombshell rears its ugly head again. Putting VAT on private school fees would be doing a lot of heavy lifting.

Scrapping the £28 billion figure thus smoothes Labour’s path to government at the expense of its ability to do anything its members would consider meaningful once in office. But it also creates a new problem for an incoming Starmer administration. Labour might be junking the £28 billion in green spending, but it is unlikely to scrap its commitment to decarbonising our electricity grid by 2030.

This policy is a dramatic quickening of the Government’s already ambitious aim of providing 95 per cent of our electricity from carbon-neutral by 2030, and 100 per cent by 2035. The Green Prosperity Plan was designed to help reach this. It so far included at least £8 billion of pre-existing government spending, as well as £6 billion annually on upgrading insulation, and a further £1 billion a year to ‘Great British Energy’, a body to invest in new green technology.

It is difficult to underestimate the radicalism of this proposal. One commentator has called it “Labour’s moonshot, its war effort, and its industrial revolution all rolled into one”. In a single Parliament, Starmer hopes to fundamentally transform Britain’s energy system. Despite the rapid transformation of our electricity supply over the last decade, ‘clean power’ only accounts for 55 per cent or so of our supply.

Even before the latest Hinkley Point setback, this target looked almost impossible to deliver. Analysis has suggested it was at the furthest edge of what is possible. To deliver it a Labour government would need to throw its entire weight behind delivering the 2030 target in a wartime or Covid-style all-encompassing collective heave. Radical planning reform would have to be coupled with a large increase in spending. £28 billion would likely only scratch the surface.

Accordingly, in dropping the pledge, Starmer and Reeves are left committed to an utterly transformative energy policy without the money to deliver it. That is even before any further geopolitical crises throw our economy into further chaos. Labour hopes scrapping the £28 billion pledge will get them a little closer to Downing Street. But doing so will make their lives even more difficult for them once they are there.