Home » Labour gambles green vision on £28bn u-turn

Labour gambles green vision on £28bn u-turn

by Tim Clark
NBS launches sustainability survey

Did Labour lose its nerve by scrapping its much-vaunted £28bn green investment plan, or was it savvy politics that will smooth the ride to delivering low-carbon ambitions? Tim Clark reports

It was launched as a grand plan to turn Britain into an ecological and economical powerhouse; a £28bn annual investment in a greener, brighter future. Now, the grand plans have been scrapped.

It is the kind of tale that has become synonymous with the current incumbent of Number 10 Downing Street, however the u-turn in question was Labour’s own flagship green policy, launched in September 2021 by shadow chancellor Rachel Reeves.

On 15 February, Labour officially abandoned its plans for the £28bn green investment programme, citing an uncertain economy, and Tory “mismanagement”. The scaled-down plans that were revealed by Labour leader Keir Starmer will see a smaller investment.

Prior to analysing Labour’s u-turn, it’s important to understand how and why Labour launched its £28bn policy in the first place.

Was Labour ever really going to spend £28bn?

With the country emerging from the Covid pandemic in 2021, Labour’s plan was to create a generation of green jobs to kickstart the economy, with Reeves pledging to invest in “good jobs in the green industries”.

This included giga-factories to build batteries for electric vehicles; investment in the hydrogen industry; offshore wind with turbines made in Britain; investment in flood defences; and investing in cleaner energy and home insulation.

As Reeves said herself, “in other words: protecting and strengthening our everyday economy”.

Key to understanding the pledge is the political small print. Labour’s plan was actually to invest £28bn a year by the second-half of its parliament, so the investment would have been ramped up from a smaller start. This makes sense, seeing as it’s nigh on impossible to simply turn on a £28bn-a-year industry; vast amounts of money could have gone to waste.

As the Institute of Fiscal Studies (IFS) says, the £28bn investment “might be more accurately described as a £20-billion-a-year plan”, if taken as an average over the course of a four or five year parliament.

The IFS also states that almost all governments underspend on their major capital projects, concluding that: “In all likelihood, large sums would go unspent. Historical experience shows that governments of all political stripes have tended to undershoot their capital spending plan […]

“The OBR’s [Office of Budget Responsibility] official forecast would assume that only £16bn of this would actually get spent.”

How could the £28bn have been spent? According to the Green Alliance, the investment would have been on a range of capital projects.

The largest chunk, £8.8bn would be invested into the energy grid to move away from fossil-fuel power generation. A further £6bn would have been invested in home insulation. Following on from that, annual investments of over £1bn included £2.5bn on carbon capture and storage, £1.6bn on decarbonising transport, £1.1bn on electric vehicles and charging points, £1.5bn on heat pumps.

construction worker laying insulation in the roof of a house
Image credit: irin-k/Shutterstock

Over £800m was to be spent to decarbonise the steel industry, which is particularly carbon-intensive in output. An additional £1bn per year would be invested to train a workforce in requisite skills to help undertake the gargantuan plan.

Adam Berman, deputy director at Energy UK, a body which represents 80% of the UK’s power generation companies, said that the energy industry was backing any plans that could transition the economy into a net-zero future.

“We’re really positive about any plans that are able to accelerate that transition and are able to move us faster in the direction of cheaper bills, and have more energy security,” Berman said.

“In terms of the £28bn announcement itself, it’s really important for investors that any government keep their commitments, as certainty is the most important thing that investors are looking for: These really long-term infrastructure projects which are often in place for 25, 30, 40 years – particularly if we’re thinking things like nuclear projects.”

Reeves reaffirmed her commitment to the “Green Prosperity Plan” only last Autumn, which prompts the question: Why the change?

It may be a question that only Labour can answer, however official opposition has faced criticism from a plethora of organisations for its u-turn.

Bob Ward, policy and communications director at the Grantham Research Institute on Climate Change & the Environment, at the London School of Economics & Political Science, said that Labour caved into government pressure that according to him is “itself not investing anywhere near enough” to ensure a sustainable future economy.

“While it is good to see some further details of Labour’s Green Prosperity Plan, it is disappointing that it has scaled back the ambition of its planned levels of investment,” Ward said.

“The plan will boost action on cutting emissions, but it lacks any investments in tackling our vulnerability to climate change impacts, biodiversity loss or environmental degradation, including air and water pollution.

“This weaker level of investment will also provide less of a boost to our productivity and growth, and will still leave the UK trailing the other G7 countries. This abandonment of ambitious investment plans may also undermine the confidence of private investors.”

The damage may be more political than fiscal to Labour in the short term, with others agreeing with Ward’s diagnosis of Labour’s u-turn.

“Everyone can see that the climate impacts are being felt around the world, and in the UK, in terms of extreme weather events, which have a knock-on effect to everyday life in a multitude of ways,” says Dr Donal Brown, director of UK programmes at climate solutions charity Ashden.

“So now is the time that UK political leaders of all hues must show bravery and economic common sense on the green agenda.”

Curiously, public opinion is also against Labour dropping the plans. A poll of 2,078 adults conducted by Nature 2030 on the revised plans found that over half of UK adults believed that the decision to drop the original plan was misguided.

Where are we now?

With many anticipating Labour to be successful in any forthcoming general election, the plans have a certain gravitas that is not normally bestowed on opposition parties.

The plans unveiled in early February will scale down the investment outlined above. Labour states that the new plans will still see up to £6bn a year spent on a home insulation scheme, which aims to insulate 19m homes across the UK. However even this may come with strings attached.

Any new Labour government has pledged to see debt falling as a percentage of economic output by the end of any parliamentary term, if they were to win an election.

E3G, an independent climate change think tank, outlines how the investment landscape has changed. The original investment pledge from Labour was £60bn over 10 years in green homes, or around £6bn a year.

“In the plan set out today, they have pledged £13.2bn over five years, or around £2.64bn per year. In comparison: This parliament, the Conservatives allocated £4.7bn to home upgrades, or around £0.9bn a year. So, while this represents an uptick from current levels, it is far below Labour’s original commitment.”

wind farm, Wind farm proposed for the Morecambe and Fleetwood coast
Image credit: TebNad – Shutterstock

Call to action

“We need proper, concrete, decisive action now. People will respond politically when their homes are safe places to live in during weather extremes, and they don’t see their energy bills rising. This is not rocket science,” Brown says, stating that the green policy is spread across the entire UK economy, from homes through to offices, commercial workplaces and schools.

Brown adds: “Schools are also a great example of how focusing on green policies could go very, very right – not only will schools that are built in a way that means they can spend their budgets on educating children, instead of high energy bills to keep schools warm or cool, but they will keep our children healthy and happy – this is surely a vote winner?”

The question for many is, where does the scaling back of the policy leave Labour’s green credentials?

The main takeaway from Labour’s new policy, Making Britain a Clean Energy Superpower is that the party is still committed to clean energy generation by 2030. It commits to building thousands of local power projects, and cutting up to £1,400 off annual household energy bills, as well as £53bn off commercial bills by 2030.

The policies are still ambitious; a Labour government would quadruple offshore wind with an ambition of 55GW by 2030.

It also aims to pioneer floating offshore wind, by fast-tracking at least 5GW of capacity, and more than triple solar power to 50GW. Onshore wind would also be prioritised, having stagnated over the past decade, and any new Labour government would recommit to both Hinkley Point C (which is arguably too far progressed to cancel at this stage) as well as Sizewell C.

Small modular reactors are backed, as is carbon capture and storage, hydrogen, and long-term energy storage. What the new policy lacks is price tags on each ambition. Deliberately vague or politically savvy?

For some, the new policy should be more palatable for the markets, with less overall borrowing to fund investment. Writing in Politics Home, Iceland boss Richard Walker stated that the decision was “sensible”, adding that fiscal discipline would “lower the cost of government borrowing”.

From any other party, the plans would look ambitious. The general election will prove whether Labour is able to deliver on its promises.

Image credit: Kampan/Shutterstock

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