Schrödinger’s cat is no more. For weeks, as I write in this week’s New Statesman cover story, Labour’s £28bn green pledge has existed in a strange halfway state: both dead and alive.
Senior party sources had long advertised that the policy would be dropped and the shadow chancellor Rachel Reeves had refused to let the number pass her lips. Yet as recently as yesterday, Keir Starmer was defending the £28bn-a-year figure on Times Radio, putting him at odds with his own shadow chancellor. A party spokesperson stated only this afternoon that Labour’s policy remained to “ramp up” green investment to £28bn.
Tomorrow, however, Starmer will finally end the confusion and confirm that the policy has been abandoned. His use of the £28bn line, a shadow cabinet minister suggested, reflected a reluctance to “show his workings” while policy is in flux. It’s not a U-turn until it suddenly is. Starmer is said to have been angered by the numerous advance briefings.
Labour’s decision reflects a combination of political and economic factors. On the political side, the campaign director Morgan McSweeney and the national campaign coordinator Pat McFadden have long feared that the £28bn figure leaves Labour vulnerable to a classic Tory “tax bombshell” attack – the strategy that helped deliver them election victories in 1992 and 2015. Though there is little polling evidence that Conservative attacks have had impact, McSweeney recently warned the shadow cabinet that this could change in the heat of a general election campaign. Labour has to “bombproof” its offer in advance. Shadow cabinet ministers of all persuasions agree that the green prosperity plan should never have been defined so heavily by a number.
On the economic side, Labour’s shadow Treasury team has long regarded the £28bn number as a fiscal fiction. Since last summer, it has been subject to numerous caveats: that it must comply with the party’s fiscal rules (to avoid borrowing for day-to-day spending and to reduce debt as a share of GDP); that it will not be met until the second half of the next parliament; and that it includes existing government green investment (currently £8bn).
Since economic modelling has shown that increasing investment to £28bn a year would break the party’s fiscal rules, the figure was never likely to be met in the next parliament. While some reasonably point out that Labour’s fiscal rules could be loosened – for instance by adopting a ten-year debt rule – there is no evidence Reeves is contemplating this. Though the party’s final rules will not be confirmed until closer to the general election, an aide said that she regards the government’s pledge to reduce debt on a rolling, five-year basis as “sensible”.
It was Reeves herself who made the original £28bn pledge in her 2021 Labour conference speech but advisers argue that she has been forced to respond to a changed world. “I’d love to know who predicted war in Ukraine [and] the Middle East and the Tories crashing the economy,” one said.
Labour’s U-turn has come earlier than some anticipated. Many expected the party to only act after the Budget on 6 March, blaming Jeremy Hunt’s likely tax cuts for narrowing the UK’s fiscal “headroom”. What is behind the timing? Media coverage of the rhetorical split between Starmer and Reeves (as reflected in this week’s New Statesman cover story), MPs suggest, was a factor. Tomorrow (8 February) is also the deadline for policy submissions for Labour’s manifesto. The party is getting its house in order.
Starmer’s move is not without political risk. It will encourage the charge from left and right that he is a “flip-flopper” who doesn’t stand for anything. Indeed, his chief of staff, Sue Gray, has warned him in advance of this.
On a more fundamental level, it also raises the question of how a Labour government would increase Britain’s economic growth to the highest in the G7 and achieve its target of clean power by 2030. As recently as yesterday, Starmer insisted that £28bn was crucial to both. The policy may have gone but the arguments it triggered will endure.