‘You could never spend £28bn a year’: What Labour’s green pledge U-turn really means

By David Blackman

12th February 2024

Labour’s shadow cabinet team have been finalising their proposals for inclusion in the party’s manifesto for the upcoming general election. But one proposal that has already been canned is the party’s commitment to invest £28 billion per annum in a Green Prosperity Plan (GPP), which was first unveiled three years ago.

More or less since Rachel Reeves stood up at Labour’s party conference in September 2021 to proclaim herself UK’s first “green chancellor”, the bold pledge has been the subject of death by a thousand cuts.

Initially, the scale of Labour’s mooted eco-largesse riled internal critics, who couldn’t understand why the party’s leadership was prioritising lavish investment in green measures while tightly controlling other areas of spending. Then the Conservatives identified the planned capital investment splurge as an opportunity to paint Labour as profligate with public finances, prompting the opposition to inch back on its commitments.

In the summer of last year, as interest rates soared from their rock-bottom post-financial crisis levels, Reeves announced that Labour would build up spending to £28 billion a year by the middle of the next Parliament. At the beginning of this year, party leader Sir Keir Starmer further watered down the financial target to an “ambition”.

Then at the party’s business conference at south London’s Oval cricket ground earlier this month, the shadow chancellor played a very straight bat when quizzed about the fate of the commitment by repeatedly failing to answer questions about it.

After months of speculation, Starmer last week confirmed that the party will no longer commit to spending £28 billion a year on green initiatives. Instead, policies outlined in the renewed plan represent £23.7 billion of investment over the course of the next Parliament, which equates to less than £5 billion a year.

So where will Labour focus its more limited financial firepower? And will the GPP, once likened by fans to the US “moonshot” rocket mission of the Sixties, turn out to be a damp squib?

Matching the US on green ambition

The Energy Research Accelerator (ERA) network of academics published a report last week assessing Labour’s decarbonisation, ahead of the latest bout of debate over the £28 billion.

Labour’s target was the “right” level of spending, argues the ERA’s professor Martin Freer. “It’s vitally important. If you can see what’s being done in the US, the Inflation Reduction Act is a very substantial investment and we need to be not necessarily matching it but have the same level of ambition otherwise it is going to go into markets outside the UK.”

Labour’s proposal to set up a state-owned Great British Energy (GBE) company, announced by Sir Keir at the party’s 2022 annual conference, looked like it would be a key differentiator between opposition and the government at the next election.

Shadow energy and net zero secretary Ed Miliband has talked about the new company taking stakes in new renewable developments so that the public can secure a share of the profits from such projects.

Jess Ralston, head of energy at the Energy and Climate Intelligence Unit (ECIU), says: “The industry quite liked the idea of it , because it creates more certainty for investment by derisking the financing.”

However, the ERA report last week poured cold water over this proposal, recommending instead that GBE should focus on areas where the market will struggle to deliver, like grassroots renewables projects and helping councils to draw up local area energy plans. This offers scope for Labour to save some of the mooted £28 billion commitment.

Nathan Bennett, head of public affairs at RenewableUK, sees merit in GBE having a “narrower” remit by focusing on support for commercially unproven technologies, such as tidal power and other potentially vital elements of the energy system requiring substantial upfront capital investment.

“Instead of co-investing in mature, fixed bottom offshore wind projects that are going to happen anyway, maybe it just narrows its focus to innovative technologies and those parts of the electricity system that could really be helped by long-term patient capital, like converting salt caverns into long duration stores.”

Back-pedalling on investment, after having planted its flag so firmly in green territory, will provoke some to wonder about Labour’s commitment to the wider net zero agenda, says Josh Buckland, a former special advisor on energy and climate change to Conservative governments.

“The challenge is that it’s been positioned as a key deliverable, so if they back away from it there will be pushback from some quarters around exactly what that means for their (Labour’s) overall level of climate ambition.”

However, the industry seems pretty sanguine about Labour’s potential watering down of this investment, he says: “From an industry and company perspective, very few are clamouring for greater levels of public investment. The real focus is around the business models that will bring forward private investments with a bit more clarity about how the models are going to work in the long-term and certainty around technology choice.

“The general view seems to be that they fully believe that Labour is committed to the agenda and even if they slightly soften the £28 billion language, they would not see it as a massive step back from the opposition.”

Tom Burke, founder and chair of environmental consultancy E3G, is not worried, at least initially, because the supply chain probably couldn’t cope with a big jump in investment.

“You never could spend £28 billion a year: we don’t have the capabilities to spend it. Public resources are going to be awfully tight and there’s a lot of private money looking for things to invest in.”

While Labour has made some commitments, such as increasing energy efficiency investment to £6 billion per annum and an allocation of £1.8 billion for investment in ports to serve the country’s burgeoning offshore wind fleet, the detailed picture on much of the planned spend is murkier.

Chris Friedler, senior policy manager at The Association for Decentralised Energy (ADE), says: “It’s not been clear where exactly that money would go.”

To continue reading this article, click here to access the Digital Weekly issue where it was first published.