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Labour Clings On To Clean Power Pledge But Finally Kills £28bn Target

Labour leader Keir Starmer and shadow chancellor Rachel Reeves scaled back Labour's Green Prosperity Plan on Thursday. (Alamy)

7 min read

Labour has officially dropped the £28bn price tag for its Green Prosperity Plan after weeks of mixed messaging from party leadership over the cost, but has reaffirmed a commitment to set up a state owned energy company.

In an impromptu press conference on Thursday, Labour leader Keir Starmer and shadow chancellor Rachel Reeves sought to regain their grip on the narrative surrounding their flagship policy pledge after Tory attacks around the funding had led to confused messaging over an initially proposed cost of £28bn. In recent weeks some senior Labour figures continued to insist that the figure remained an "ambition" but that it could only be realised if they were able to borrow to invest "within Labour's fiscal rules". 

PoliticsHome understands that shadow energy secretary Ed Miliband, while not present for the press conference, was consulted about the change in direction. 

Labour leadership confirmed that the £28bn spending commitment for its Green Prosperity Plan was no longer formal policy arguing the pledge was no longer affordable as a result of the government "crashing the economy" and that they planned to "max out" the UK's credit card during their remaining time in office. 

But they insisted that this did not mean the party was in the long term rowing back on climate policy and retained the commitment to deliver green power by 2030. Starmer told journalists that "discussion with all sectors now is at a very deep level". 

Speaking to reporters, Starmer and Reeves announced that they would expand Labour's planned windfall tax on energy firms to fund the green investment plan. Under this updated policy, the levy on excess profits will be extended until the end of the next parliament, while the rate at it is applied will rise from 75 per cent to 78 per cent - putting the UK in line with Norway.

Starmer also said a Labour government would spend £23.5bn over the course of a parliament, which lasts five years, meaning around £5bn a year. This is a major reduction on the £28bn a year pledge.

It was confirmed that £8.3 billion would be spent on Great British Energy, the previously announced plan to invest in clean energy, which includes £3.3 billion already announced for the party's Local Power Plan. Great British Energy will invest in green energy projects including offshore wind, hydrogen, carbon capture, tidal, and nuclear. 

“Something had to give if we were to meet our fiscal rules and achieve green power by 2030,” Reeves told journalists. 

A commitment to improve household insulation via the Warm Homes Plan within 10 years was also curtailed to a new 13-14 year target. 

"It will take longer than we had originally anticipated: so now the likelihood is about 5 million homes during the first five years," Starmer said. 

The Green Prosperity Plan, which was announced by Reeves in 2021 but the timescale within which to meet the spending pledge had already been lengthened. Over the last month this had been caveated further to say that the £28bn would only be spent if Labour's tight fiscal rules were met. Just days ago Starmer said his commitment to the £28bn Green Prosperity Plan was "unwavering". 

Last week Labour sources told PoliticsHome the Green Prosperity Plan was set to be scaled back, with the £28bn figure expected to be scrapped amid fears Conservative strategists were devising attack lines ahead of the next general election based on that figure, with the Conservatives claiming it would be paid for with tax rises. 

PoliticsHome understands figures within the green energy sector had privately asked national campaign coordinator Pat McFadden and Labour's director of campaigns, Morgan McSweeney not to scale back the Green Prosperity Plan, but were told it had become an "albatross" around the party's neck. 

Another core element of the plan is Labour's National Wealth Fund, which the party say will create up to half a million jobs in Britain's "industrial heartlands", providing job opportunities for lumbers, electricians, welders, and workers. The party say this will "crowd in billions of additional private investment" to the industry, including in steel, automotive, energy, and manufacturing. 

In a statement, Miliband said: "Labour will be fighting the election with a world-leading agenda on climate and energy with every single individual policy already announced now confirmed for the manifesto: Great British Energy, a National Wealth Fund, a Warm Homes Plan, a British Jobs Bonus, a Local Power Plan and no new oil and gas licences as well as our 2030 clean power mission."

Responding to the announcement, prime minister Rishi Sunak said Starmer "doesn't have a plan for Britain".

Ed Miliband, Keir Starmer
Shadow energy secretary Ed Miliband wasn't present during the announcement but PoliticsHome understands he was consulted about the change in direction. (Alamy)

"His pledge has a £28bn price tag and now he's admitted there's no plan to pay for it, which means going back to square one with higher taxes for working people," said Sunak on X.

"That's why we need to stick with our plan that’s working."

Labour's decision to scale back the plans was welcomed by Labour Together director, Josh Simons, who said it was the right decision to drop the £28bn price tag. 

“Clinging on to a fixed investment figure when the Tories have crashed our economy and failed to generate growth would not be a credible offer to the British people," he said. 

"If ditching the number enables Labour to make the argument for investment with confidence, focusing on the benefits for working people, then good riddance to the number."

However, there is unhappiness in Labour with how the issue has been handled by the party - as well as unhappiness in the energy sector about the lack of clarity on the issue. 

One Labour source told PoliticsHome the drama caused by the £28bn figure was being seen as a "power grab" by shadow chancellor Reeves.

A Labour MP told PoliticsHome the way the announcement had been handled was "shambolic", making leadership look like "they've been bounced into saying something before they are ready to". 

Labour MP Barry Gardiner, who is a former shadow energy secretary and sits on the environment and rural affairs committee, has also criticised the party's decision to scale back the plans - branding it "economically illiterate" and "environmentally irresponsible".

"If you make [your manifesto] so bland, if you stand for nothing, then the opposition and government will actually write your policies for you," Gardiner said on BBC 4's Today programme.

"They will say: ‘You see, Labour’s not telling you what they’re going to do, it’s going to be this it’s going to be that’ - and they can paint their own picture.

"So I think politically, it’s strategically incompetent."

Adam Berman, deputy director of Energy UK, told PoliticsHome the way the scaling back of the £28bn green prosperity plan had been handled had been disappointing for the green industry to watch. 

“The Labour party has been engaging constructively with business over recent months, and the market has responded positively to their ambitions," said Berman,

"Whilst the majority of investment needed for net zero will come from the private sector, any government has a role in using public investment to crowd in additional private sector investment.

"In that context, it's concerning to see any major political party step back from commitment to invest in the economy of the future.

"Labour's spending plans are a signal to the market - the exact figure is not the issue here, it’s the signal it sends.

"Our members are looking for certainty above all else, and unfortunately that’s opposite from what they’ve been getting over the last few months.

"Retraining the confidence of the market will rely on not making u-turns that damage the UK’s investability.”

Adam Bell, a former government energy adviser and director of policy at Stonehaven consultancy, told PoliticsHome the scaling back had not been handled well, and had sent the wrong message to industry. 

"Debates around this particular number has become almost totemic and a test of strength between different factions in Labour... it hasn't been edifying," he said. 

"This decision will have rightly annoyed people in the green debate, and it will have sent the message to investors: 'are the UK really going to do the IRA [Inflation Reduction Act] sort of thing, are they really going to do that?...

"It also still doesn't necessarily answer the question on how you're going to make energy affordable for everyone else... this may be a dash for growth with long term implications for how warm our homes are."

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