Picture the scene: it is 2024 and Keir Starmer and Rishi Sunak are going head-to-head in their first pre-election broadcast debate. Sunak, still attempting to push the Conservatives’ reputation for fiscal responsibility, tries to expose the gaps in Starmer’s spending plans. As one of Labour’s longstanding promises, the pledge to invest £28bn of public capital a year into the green economy is an obvious target.
If Starmer stumbles on how this money will be allocated, or how it fits within the party’s wider promise to reduce government debt as a proportion of GDP, Labour’s election chances could start to unravel. So too, could the UK’s ability to act faster on the climate crisis.
Those are the stakes. Meanwhile, right-wing opposition to climate action is growing louder. In response to reports that Starmer may soon propose a ban on new North Sea oil and gas licences – something the International Energy Agency has advised to meet net zero goals – the government’s Secretary of State for Energy Security and Net Zero, Grant Shapps, said that the plan would “trash the economy”. The result is increasing pressure on Labour to show how climate policy is also good for people’s finances and livelihoods. Fail, and the backlash can be intense – as shown in 2018 in France, where gilet jaunes protests erupted over planned changes to fuel tax rates.
So far, Labour’s leadership has remained united behind the party’s proposed Green Prosperity Plan, which echoes the US Inflation Reduction Act’s promotion of green industries, and that the £28bn pledge would support.
As the shadow climate change and net zero secretary, Ed Miliband, told Spotlight, Labour is resolute that greater green investment is the right decision – for the climate, yes, but also for jobs and bills: “The Green Prosperity Plan is essential to cut energy bills, create good jobs, deliver energy security, and provide climate leadership. We need to invest if we want to win the race for good green jobs, because under the Tories we are being left behind whilst the US, Europe and China get ahead.”
The concept of borrowing to invest in a growing economy has good foundations: debt’s percentage of GDP can fall if the economy grows and World Bank data has found that US $1 of green investment can yield US $4 of returns. Plus Labour’s “net worth” fiscal rule means that a Labour government would balance what it owes against what it owns, rather than just count the debt.
The cost of damages from climate change will only rise if action is not taken swiftly. Yet £28bn a year is a big number and how far the public is ready to embrace pro-borrowing arguments remains to be seen. Relatedly, some of Labour’s other shadow ministers are concerned that tying the money to green spending means their own departments will miss out, the Guardian reports. So can the pledge stay the electoral course? And what new detail could help?
The bones of the initiative can be traced back to a 2020 IPPR report for an Environmental Justice Commission, of which Miliband was co-chair. Building on analysis by the independent Committee on Climate Change and leading green NGOs, the think tank estimated that there was a £33bn a year shortfall in public investment needed to tackle the climate and nature crises.
A little over a year later, against a backdrop of mounting public concern about the climate threat, the shadow chancellor Rachel Reeves announced Labour’s own £28bn commitment, including £6bn a year for energy efficiency. Linked investments have also been promised in steel, ports, industrial clusters and hydrogen – to be delivered through a new National Wealth Fund and publicly-owned generation company, GB energy.
Since these announcements, however, progress on, the spending detail has been slower. And in recent weeks, there has even been speculation it could be the party’s next policy U-turn. The shadow chancellor used a recent speech to stress the importance of the party’s Green Prosperity Plan, but has also clarified that the £28bn a year would not actually “ramp up” to meet this target until the mid-point of the next parliament. According to the Times, Starmer will try to further explain the pledge “in a speech in the coming weeks”.
“To reap the political benefits of the Green Prosperity Plan, Labour now need to say what the money will be invested in – what it will build, what benefits it will bring – and what the pro-social, pro-climate and pro-justice conditions attached to public money will be,” notes Mathew Lawrence from Common Wealth, a think tank.
Take, for instance, the UK’s existing offshore wind industry, Lawrence suggests. This sector has flourished thanks to government intervention that removes the risk for private investors, such as the “Contracts for Difference” mechanism, which guarantees a fixed price for the electricity produced. This has helped increase the UK’s total renewable generation – but the funding also failed to attach any conditions of UK ownership or control, resulting in much of the industry’s economic value leaking out.
“We have a brief window of opportunity to ambitiously address the climate crisis and our economic malaise in tandem; the £28bn is down payment to build a different kind of economy. It is not enough, and requires deep structural reform to accompany it, but it can be an important start,” Lawrence adds.
The full details surrounding the financing of Labour’s Green Prosperity Plan will have to wait until Reeves sets out the party’s fiscal rules in the last fiscal event before the general election, says a Labour source. In the meantime, a host of climate-aware think tanks and NGOs are stepping up to highlight some of the questions that could help solve Labour’s £28bn political puzzle.
Part of Labour’s Green Prosperity Plan includes the establishment of a public energy company, GB Energy, to bring new clean energy generation into full or part public ownership. A National Wealth Fund has also been announced to channel investment into green tech and create over a million jobs. Together, the party says the initiatives will help achieve two of Labour leader Keir Starmer’s five “missions”: making Britain a clean energy superpower and securing the highest sustained growth in the G7.
But among the questions surrounding the £28bn’s role in supporting the Green Prosperity Plan is exactly how interventionist its approach to industrial strategy will be. How far, for instance, will the growth of new green industries be left to the market to decide, or guided by state-led bodies? Will support be directed more towards helping consumers or producers? Will investment in reskilling gas engineers as heat-pump installers, for instance, be counted as a capital spend? And will the funding encourage British companies to produce complete end products, such as EV cars, or just certain components?
According to Ben Westerman, the interim executive director at the Aldersgate Group, a non-profit, businesses are supportive of “targeting support on specific parts of production”. What is essential though, Westerman adds, is that targeted funding is accompanied by stable policy that allows businesses to plan for the longer-term and attract investors. “The UK has preferred short-term funding pots as signals to the market in place of long-term policy: The Automotive Transformation Fund, for example, has not been enough to scale up EV production in the UK.”
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The parameters of GB Energy’s public ownership of energy generation have not been firmly set, either. Some analysts, such as those at the think tank Common Wealth, believe its remit should be broad: “a public generator can help deliver the energy transition faster, fairer, and more effectively than leaving it to for-profit markets,” says Lawrence.
So far, Labour has stressed the collaborative nature of its GB Energy plans. As a Labour source explained, “GB energy is going to be a player in the market but not have responsibility for coordinating the market. We don’t want to crowd out the private sector, we want to partner with it.” That said, they added, there could be room for some fully publicly owned assets, too.
One of the few parts of the £28bn already allocated to a specific sector is the £6bn per year on improving energy efficiency. This is a “very positive” move, notes Colm Britchfield from the think tank E3G, since it will both cut fossil fuel use and bring down bills. Yet, he adds, the biggest long-term savings of carbon emissions will come not from efficiency but electrification.
“There’s a risk that in 10 years you’ve added great insulation, raised EPC standards and cut gas demand, but you’re still reliant on gas. So we also need a fleshed out plan within that 6bn for heat pumps and district heating,” says Britchfield. This could include expanding subsidies to help people with the upfront cost of installing heat pumps and taking action to lower the relative cost of electricity compared to gas, he suggests.
Both funding for EV infrastructure, as well as subsidies and grants for buyers, could be classified as capital investment in transport, says Luke Murphy from IPPR, but he notes that regulation would also be needed to support second-hand buyers. This could come in the form of an earlier combustion-engine phase-out date for fleets of company cars, allowing replacement EVs to trickle down to the second-hand market in time for the existing 2030 deadline, plus subsidies to help poorer households with purchasing.
EVs can also only go so far towards meeting the UK’s emissions reduction needs for transport. So in line with recommendations from the Committee on Climate Change, the Welsh government is already pursuing plans to curb road-building. Funding to support public transport, as well as walking and cycling, will be key.
How nature recovery fits into Labour’s climate agenda is arguably the area on which its thinking is still least developed. But according to Vicki Hird of Sustain, a food and farming alliance, nature is “definitely going to need to take a chunk of that £28bn”. This should include investing in policies that will sequester carbon, such as peat and wetland restoration and woodland creation, she suggests, but also helping farmers transition to agroecological methods and supporting local food infrastructure.
Current government funding for farmers through ELMS, a new payment scheme designed to promote environmental land management, is simply not enough, many NGOs warn. And even if more money is found, advises Martin Lines, the head of the Nature Friendly Farming alliance, Labour needs to do more to reassure it will be attached to the right initiatives.
“If we’re not careful we’ll invest in areas that will penalise nature, such as wrong trees in wrong place, or not recognise the risks that intensifying food systems can pose to animal welfare, air quality and local environment and waterways,” says Lines. Simply helping farmers buy the latest lower-carbon tech also won’t be sufficient; they will also need training to use it. Plus baseline prices should be set for sellers on things such as seed drills (which can reduce the use of fertiliser), so they don’t automatically mark-up the costs.
As the above only begins to suggest, the commitment to invest an annual £28bn in green capital leaves much to be decided. The rate at which investments should be made is still up for debate. “They will need an investment profile that starts slowly before ramping up considerably,” advises Chaitanya Kumar from the New Economics Foundation. Careful coordination of institutions could help here, IPPR’s Luke Murphy suggests, such as the creation of an “Olympic Games style” delivery body.
There are also still some big picture decisions to make. Many on the progressive left stress the need for the green transition to accompany wider social reform. While some of Labour’s draft commitments suggest they share this joined-up vision, such as a promise to address regional imbalances, questions remain over the extent to which the investments will reduce entrenched inequality.
In order for the £28bn to have the greatest impact Labour “must be clear on who pays for it, who benefits and how it works within their wider programme for government,” says Hannah Martin, the co-director of Green New Deal UK.
“That means making sure that the benefits of the transition are distributed right across the country and that capital expenditure goes towards job rich projects. It means increasing public ownership of key services like water, energy, mail and transport. And it also means rebuilding strong social infrastructure and public services after decades of austerity.”
In addition, Labour should be leading the way in setting up an international windfall tax that is then redistributed as reparations to those hit hardest by the climate impacts of climate change, Martin suggests.
Labour’s task will perhaps be made easier by the fact that progressive parties abroad, such as the Greens in Australia and Germany, have had electoral success with similar arguments. Biden’s IRA has already linked subsidy support for companies to things like the creation of well-paying unionised jobs. This is something a Labour source says the party would also pursue.
There is clearly an appetite for ambition on the climate, from the public as well as industry. “Labour have put green investment at the heart of their offer to voters, and they can capitalise on this if they communicate well,” notes Helena Bennett from the think tank Green Alliance. “They have a massive opportunity to do some proper visioning about a future Britain.”
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