Labour has scaled back plans to borrow £28bn a year to invest in green jobs and industry as the party’s leadership looks to review its spending in an attempt to prove its fiscal credibility. The shadow chancellor, Rachel Reeves, delayed plans for a green prosperity fund to start in the first year of a Labour government, saying it would “ramp up” by the middle of a first parliament. She said the decision had to be taken as a result of the poor economic backdrop and rising interest rates, after Liz Truss’s short premiership crashed the markets last autumn. The Guardian understands Labour has also been looking closely at how to keep other areas of major spending within its fiscal rules. Insiders said the party had been looking to “make sacrifices” in areas it had already flagged as important to demonstrate its focus on economic credibility.
The decision on the £28bn is another sign of the spending discipline being enforced by Reeves, as the Conservatives increase their attacks on Labour before the general election, which is likely to come next year. Reeves, who announced the delay to the prosperity fund on BBC Radio 4’s Today programme, said Labour would now build up to the annual £28bn plan by halfway through a first parliament. The party had promised to spend £28bn a year on green investment until 2030 from the first year after coming to power.
However, Reeves said she could not have predicted the market crash caused by the former prime minister Liz Truss’s plans for unfunded borrowing for tax cuts last autumn, which created the difficult economic conditions including higher interests rates affecting the cost of debt repayment. She said the priority was sticking to Labour’s fiscal rule, that debt must be falling as a share of national income after five years. “No plan can be built that is not a rock of economic and fiscal responsibility … I will never play fast and loose with the public finances,” Reeves said on Friday. She said her fiscal rules would be non-negotiable, so Labour would move to the £28bn green investment gradually rather than immediately if the party won the next election. Reeves said she was “on the same page” as Keir Starmer, the Labour leader, and Ed Miliband, the shadow energy secretary, regarding the need to scale back the ambition of the plan. One senior Labour source said: “There’s been a recognition for some time given the change in interest rates from when Rachel made the original announcement to where we are today that a clarification was required. It seemed to make sense to get out there and say it explicitly.” While Reeves stressed the fiscal discipline of the move, Miliband later told the BBC’s World at One that also it was partly a matter of practicality, as it could take some time to get supply chains ready for the £28bn of spending. The party is “100% not abandoning our plan”, he added. The Guardian revealed this month that shadow cabinet ministers had asked Reeves to expand the fund’s green mission and use it to pay for a series of capital spending projects, such as housing or transport infrastructure. Reeves had indicated to colleagues there would be no additional money to pay for major infrastructure spending, leaving shadow ministers battling to claim a share of the green fund for their own projects. However, other shadow cabinet sources stressed that Miliband had always made clear that the £28bn of spending on clean energy and decarbonisation would be spread across many sectors from housing to transport. They said Reeves’s announcement showed a firm commitment to the party’s goals on net zero, highlighting the commitment to no new oil and gas licences in the North Sea. The Conservatives responded by claiming that shadow ministers had realised the policy would lead to “disaster” and sought to stress that Labour’s ultimate goal remained to reach the £28bn figure, which they said would worsen the economy. The Conservative party chair, Greg Hands, said: “Keir Starmer’s main economic policy is in tatters, after even he and Rachel Reeves realised it would lead to disaster. “It doesn’t matter if they try and pretend otherwise, Labour’s plan remains to stick £28bn of borrowing on the government credit card which will lead to higher inflation and higher interest rates.” But George Osborne, the Conservative former chancellor, suggested he thought Labour was being too “safe and boring”. Speaking to the Guardian, he said: “The good thing is that the shadow chancellor is getting a grip on the spending promises of the Labour party. The bad news is it’s removed one of the few ideas that Labour actually have for being in government. And, you know, on the one hand, I would say the Labour opposition is being more reassuring that it’s not going to take wild risks with the economy. But, on the other hand, it is not telling us really what it would do. It’s telling us what it wouldn’t do. And I think to win an election, it’s not enough to be sort of safe and boring. You have to be a bit exciting, and you have to have something to offer the country about the future. I don’t yet hear that.” Some experts suggested it had never been credible that Labour would find £28bn for green investment in the first year after entering office. Torsten Bell, the chief executive of the Resolution Foundation, said: “Bit too much excitement on ‘Labour waters down’ £28bn green investment plans. New phrasing is ‘£28bn/year in the second half of the parliament at the latest’. Anyone thinking a new government was going to be able to ramp up £28bn a year from day one hasn’t met the British state.” Environmental groups responded with dismay to the delay. Rebecca Newsom, Greenpeace UK’s head of politics, said: “Any U-turn would be a huge mistake. Without the necessary immediate investment, we will lose out on the creation of thousands of jobs needed as we phase out fossil fuels, and we will lose out on the opportunity to put green tech industries at the centre of our economy. “Rachel Reeves rightly cites the opportunities of green growth, but this prevarication on confirming the scale of investment needed from the start of a new Labour government risks throwing in the towel on the global race in green tech, with the US, China and the EU already far ahead.” Others within Labour said the move underlined the case for more wealth taxes instead. Richard Burgon, a Labour MP and former shadow cabinet minister under Jeremy Corbyn, said: “It’s increasingly clear that a wealth tax has a key role to play in providing the resources needed to invest in our public services and to tackle climate change. An annual tax of 1.5% on wealth above £10m would raise £15bn per year.”