What will Labour’s flagship promise be going into the next election? There’s a policy vacancy, now that the party plans to ditch its pledge to spend £28 billion a year on green investment.
This is not your average U-turn. This has been Labour’s big offering for more than two years. Yet today, Keir Starmer will ditch the headline figure for good – though his party still plans to usher in other parts of their proposed ‘Green Prosperity Plan’.
By abandoning the £28 billion promise, Stamer is putting to rest what had become a contentious topic within his own party. The spending promise – which shadow chancellor Rachel Reeves first committed to back in 2021 – has become increasingly diluted over the past year. Reeves had to acknowledge last summer that the money would arrive closer to the end of Labour’s first parliament rather than at the beginning. Since then, there have been questions about whether such a spending commitment could really be achieved until a second term.
If Labour wants to stump up cash for other initiatives it cannot have an additional £28 billion a year that it must find to make the books balance
As Katy Balls reported this week, Labour MPs weren’t just putting out mixed messages about the green spending plans: they were doubling down on them, with chief secretary to the Treasury Darren Jones insisting last week that the figure would be scrapped. The Labour leader himself seemed to suggest at the start of the week that he would stick by his commitment to deliver the cash. Meanwhile his deputy leader Angela Rayner both endorsed the £28 billion number, while also labelling it an ‘arbitrary number’.
It seems the Jones argument has won the internal debate: that according to Labour’s own plans for fiscal rules (which will need to see the national debt falling as a percentage of GDP), this kind of borrowing and spending would simply not be feasible anytime soon. It’s the Liz Truss lesson that many in the Labour party didn’t want to think applied to them: that in the age of higher interest rates, even capital spending pledges must be anchored in fiscal discipline. If Labour wants to stump up cash for other initiatives – around healthcare or public sector pay – it cannot have an additional £28 billion a year that it must find to make the books balance out.
The fiscal headroom Jeremy Hunt is forecast to have in his March Budget will have also caught the attention of members of the shadow cabinet. The estimated £10 to £20 billion the Chancellor is currently expected to have next month is not enough to meet the promises he would like to have made good on (he has already been forced to roll back his promise of major tax cuts). And this headroom is certainly not as much as Labour would likely have at its disposal if it wins the next election. If Labour wants to see through any tax cuts that are announced by the Tories and boost departmental spending, its green spending plan would have made tax rises all but inevitable, if it wanted to act in a credible way to the markets. Ditching the investment promise might be painful for Starmer, but it’s likely to be less painful than having the media, economists, and indeed Tory MPs speculate about where he might find the money throughout an election year.
The Tories will no doubt miss this policy. This has all been a field day for CCHQ, which has used the £28 billion figure as a diversion tactic against nearly every criticism the Labour party has thrown its way. As of today, this will become harder to do, as the number disappears.
But ditching the headline promise does not make all of Labour’s spending problems go away. There will be new vulnerabilities now that the party must manage. The party’s strategy has been to not commit to many policies in the run-up to a general election. On tax for example, certain hikes have been ruled out, but Starmer and Reeves are generally vague about where they would look to raise significant revenue. Meanwhile shadow health secretary Wes Streeting speaks boldly about NHS reform, but the details, intentionally, are not shared. This means that announced policies have carried a lot more weight – it has been presumed they had were seriously thought through by the party. This applied to Labour’s pledge to add VAT to school fees – and up until this week most certainly included the £28 billion for green investment.
Now that policy has gone. This will raise questions about the party’s willingness to U-turn on other areas of policy, not least because green spending, we were told, was a top priority for Starmer’s team. But it also raises other questions. What exactly, then, is Labour offering? Putting aside how realistic the party’s net-zero goals are, the green transition has been at the heart of its policy agenda. Now less than a year out from the election, the policy that was shaping the party’s offering is falling by the wayside. Sitting 20-plus points ahead in the polls, people are increasingly interested in what the likely next governing party might do. Labour will need to fill in these gaps quickly.
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