When Rachel Reeves announced Labour’s £28bn climate plan in 2021, she was so confident it was the right thing to do that she issued a dire warning about what would happen if the scheme was held up or scaled back. “The greatest cost to our public finances, as well as to our planet, will be if we delay and let the costs mount up for future generations to pay,” she told a packed hall at the party conference in Brighton. On Thursday, Reeves stood alongside the party leader, Keir Starmer, in front of about 30 journalists in a draughty room in parliament and reversed all of that. The £28bn was gone, as was the reasoning behind it. “We want to bring jobs to Britain, to bring energy bills down, to boost our energy security, and also to decarbonise the economy,” Reeves told reporters. “If you don’t need to spend £28bn in doing that, that’s great.” The reversal of Labour’s central economic and environmental policy has come after weeks of agonised decision-making by Starmer and Reeves, in conjunction with Ed Miliband, the shadow energy secretary. Thursday’s confirmation that the policy would be cut back to half its original scale is a key moment in Starmer’s leadership and could redefine the election campaign. It also marks a shift in Reeves’s entire economic philosophy. No longer is the shadow chancellor arguing for public investment for its own sake as a way to stimulate the economy and galvanise private capital. Instead, she says she wants to achieve Labour’s green targets using as little public money as possible. The story of how that change came about in the course of just over two years is indicative of the broader shift in approach from Starmer and Reeves in that time, as they have enacted a series of U-turns in an attempt to shed the baggage they fear could weigh them down in an election contest. From determination to doubt Reeves’s initial announcement in 2021 was regarded in senior Labour circles as a triumph. The Brighton conference had been fractious until then. The party had been plagued by splits between Starmer and Miliband on the question of whether energy companies should be nationalised. Senior figures had been followed wherever they went by protesters calling for a “green new deal”. The party’s members had defied the leadership by voting for a motion calling for a “socialist green new deal”. Reeves’s announcement brought an end to all that, answering the criticisms that Labour did not have a green policy and that it did not have an economic strategy. “I am committing the next Labour government to an additional £28bn of capital investment in our country’s green transition for each and every year of this decade,” she told delegates. “I will be a responsible chancellor. I will be Britain’s first green chancellor.” Labour stuck to the plan for many months. At the party conference a year later, Starmer announced that a significant chunk of the money would be spent on a new national energy company, to be known as Great British Energy. Other schemes included a new sovereign wealth fund to invest in green schemes and a £6bn-a-year home insulation scheme to improve the energy efficiency of 19m properties. Gradually however, senior Labour figures became nervous. After Liz Truss’s turbulent 45 days in power, Labour’s pitch to the electors was no longer to be the party of radical change, but instead to offer reassurance where the Conservatives offered turmoil. Truss’s economic plans, coupled with the war in Ukraine and rising inflation, sent interest rates on UK government debt spiking from just over 1% at the beginning of 2022 to 4.5% by the middle of 2023. Reeves was growing concerned about the economic consequences of the £28bn policy, especially after a crucial meeting she had in Washington DC in June 2023 with Janet Yellen, the US treasury secretary. People briefed on that meeting have told the Guardian that Yellen warned Reeves against making the mistake the Biden administration had of announcing major new climate investments without first reforming planning laws so they could get built. Reeves came back from that trip determined to make a change. She wrote an article for the Times announcing the £28bn figure would not be hit until the second half of the parliament, and that it would only be hit if Labour could meet its promise to have debt falling as a percentage of economic output at the end of a five-year period. Given the forecasts at the time predicted the government could borrow only an additional £6bn a year and still have debt falling in that time period, Reeves’s announcement all but killed her original policy. Decision time And yet Labour politicians continued to use the £28bn figure, putting the party in the awkward position of defending a figure they had no intention of hitting and could not say how it would be spent. Shadow ministers and advisers began pitching their ideas for how to change the policy. Some wanted to junk it altogether. Others wanted to use the money to fund other investment schemes, such as new schools and roads. Some suggested putting all the existing spending commitments in a single bill and abandoning the rest. As those around Starmer argued over what should happen, the leader continued to defend it publicly. “‘It’s absolutely clear to me that the Tories are trying to weaponise this issue, the £28bn,” he said in January. “This is a fight I want to have … If they want that fight on borrow-to-invest, I’m absolutely up for that fight.” Privately however, Starmer was becoming convinced of the need to make a change. He, Reeves and Miliband began working intensively on a compromise which would protect existing schemes such as GB Energy and the sovereign wealth fund, but scale back the home insulation scheme and clarify that no further spending would be announced. Labour officials insisted on Thursday the three had developed the plan together, downplaying talk of a split at the top of the party. The final decision was reached jointly just days ago, they added. Some of Starmer’s advisers urged him to wait until after Jeremy Hunt’s budget to make the final decision, not least because the chancellor was promising more tax cuts which would further reduce the room to borrow. The Labour leader, however, had told shadow ministers to have their manifesto policies ready by Thursday in case of a May election, so he knew a decision would have to be taken by then. Besides, reports in the Guardian and elsewhere about the fate of the £28bn were making it increasingly hard to hold the line. “Today is the deadline for shadow cabinet teams to get their proposals in and fully funded so we can begin the next stage of the process of the manifesto,” he told reporters on Thursday. “We knew we would have to get to a decision on this around about now.” Political ramifications The eventual U-turn was met with anger among green campaigners and some MPs, including the former shadow energy secretary Barry Gardiner, who called it “economically illiterate, environmentally irresponsible and politically jejune”. And while the party has recommitted to parts of its investment schemes, important question remain. Can Labour really decarbonise Britain’s energy sector by 2030 with this level of spending? What does the reduction in the home insulation programme mean for the legal requirement to eradicate fuel poverty by 2030? Many in Labour expressed relief at the change, however. “At least we know what the policy is now,” said one shadow minister. “At least we have something to defend.” But if Labour believes it now has something to defend, the Tories insist they still have something to attack. Senior advisers to Rishi Sunak insisted on Thursday they intended to keep using the £28bn figure, arguing Labour would have to end up spending that much when they realised they might miss their green targets. “Nothing has changed,” said one. But in a sign of how Thursday’s announcement by Starmer has made life more difficult for his opponents, the Conservatives were simultaneously accusing him of enacting another “flip-flop”. “The problem is the Tories now have to decide,” said one Labour figure. “Is it that nothing has changed, or have we flip-flopped? They can’t get their attack right.”