Labour announced its green energy spending plan two years ago at the party’s annual conference to an atmosphere of part shock, part fanfare. “I will be Britain’s first green chancellor”, Rachel Reeves declared as she unveiled proposals for a colossal investment in greener technology. She committed to “an additional £28 billion of capital investment in our country’s green transition for each and every year of this decade”.
But questions surrounded the initiative from the outset. Given the remarkable reluctance with which Keir Starmer’s party had announced policy up until that point, why was this the time to pronounce upon such a vast spending commitment? Starmer and Reeves still traverse the narrowest of paths as they try to persuade the public that their economic plans are robust; the party’s climate commitments were notably nonconformist.
Today’s updated approach, therefore, might be interpreted as Labour bringing a rogue policy in line with its otherwise cautious approach. The shadow chancellor told the BBC’s Today programme that should the party win power, it would look to “ramp up” spending every year to the £28 billion figure.
Of course, the fiscal environment has changed dramatically since Reeves announced the policy in 2021, and the shadow chancellor points to Liz Truss’ “mini-budget” as a factor in the worsening economic situation. There is no doubt that the market meltdown triggered by Truss’ fiscal loosening remains fresh in Britain’s collective memory, making spending commitments more salient. We know, too, that the sheer brevity of Truss’ tenure as PM was a consequence of the boldness and stubbornness of her fiscal regime. Labour, Reeves remarks, prides itself on restraint. (Although perhaps a thornier issue for Starmer comes with the cost of borrowing. Since Reeves first committed to the plan, interest rates have gone up 12 times from 0.1 per cent to 4.5 per cent).
During her BBC interview today, host Justin Webb sought to clarify with the shadow chancellor: “You think if you’d stuck to the £28 billion in the first year, you potentially could have got into the same difficulties that basically Liz Truss’s government got into?”. There was no denial, instead Reeves caveated: “I always said that our fiscal rules would be non-negotiable because they are the rock of stability upon which everything else is built”.
But Labour’s fiscal rules are far from being so over-bearing or so compellingly iron-clad to render the green prosperity plan in its former guise unworkable. Fiscal Rule three, for example, that “Labour will have a target to reduce the debt as a share of our economy”, is really a rule to have a rule sometime in the future. In truth, any policy can be pitched or ditched based on a loose interpretation of the Labour’s economic oath-swearing.
So it is not Labour’s rules that have forced Reeves’ hand on green energy but the diktats of Truss’ legacy, both spoken and unspoken. As leader of the opposition Starmer faces a cruel fiscal trap, laid unthinkingly by the former prime minister.
And since Truss, the Conservative party has sought to tighten Sir Keir’s policy straitjacket. Jeremy Hunt, the former PM’s second choice as chancellor, announced in the Autumn Statement that fiscal policy will actually be loosened in the present parliament. It means by the time the Treasury’s measures start to bite in 2024, the UK may have sustained the worst of stagflation and/or booted the Conservatives out of office. Now reporting to Rishi Sunak, Hunt also penned a new fiscal rule: annual borrowing would be limited to 3 per cent of national income. Reeves did not object — she could not — lest she be labelled fiscally flippant.
Hunt’s “delay the pain” economic strategy, coupled with the political trauma incited by Truss’ tenure as PM, boasts tyrannical control over Labour’s policy levers.
In truth, Reeves’ 2021 remarks were already ripe for exploitation in a forthcoming election campaign. Sunak was always going to slight Starmer’s spending plans, even pointing to the precedent of Truss’ tax-cutting as a cruel aside.
Moreover, with Labour figures worried that its poll lead is soft and their Conservative converts susceptible to a targeted campaign on tax and spend, perhaps the energy proposals were untenable. The electorate will not care about Reeves’ fiscal rules — but that £28 billion figure sounds scary. Today’s development is long overdue rearguard action, Labour’s “Ming vasers” will maintain.
But step back and fiscal stolidity and metaphoric crockery are not the only things at stake here. The anti-Ming vaser faction — i.e. those lobbying the Labour leadership to Go Big (the title of Ed Miliband’s latest book) — will argue the bid to reemphasise caution comes at a cost. The “watering down” of the party’s green prosperity plan, they contend, dilutes an already near-transparent political offering.
Labour’s updated approach to green policy comes before a backdrop of mounting public concern about the climate. The U-turn on its financial commitments widens the gap between Labour’s analysis of the climate threat and its prescription.
And so we arrive at Starmerism’s central dynamic: how does Labour reconcile its radicalism, epitomised by its climate ambitions, with its stolidity, conditioned by the collective memory of Trussism, Conservative attacks and a perilous economic inheritance? The nature of Labour’s political incentives point to a ruthless pursuit of caution in the lead-up to an election.
But one cannot avoid the failure of messaging and presentation here. Joe Biden pitched his green energy proposals, shrewdly labelled the Inflation Reduction Act, as good for the US’ finances. The US president sold his climate subsidies plan on firmly economic lines, evinced by the innocuous reference to inflation in the title.
Of course, Labour figures are keen to emphasise that the investment plan has not been abandoned altogether and has simply been delayed. They say, too, that this is not to a snub of Ed Miliband, the party’s climate spokesperson. (Reeves emphasised this morning that she, Starmer and Miliband are “on the same page”). But Miliband is the key champion of Labour’s interventionist agenda and has been credited with devising the green prosperity plan policy. He ranks 21st on the New Statesman’s “left power list” in part to his consistent climate lobbying in cabinet.
But, above all, the green energy U-turn shows that the party doing penance for the policies of the short-lived Truss administration is not the Conservatives, but Labour.