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Mon, 24 June 2024

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Labour Is Making Its "Slowest U-Turn" On £28bn Green Spending

Labour leader Sir Keir Starmer travels by train to meet with executive chairman of Iceland supermarket (Alamy)

7 min read

Labour insiders say the party has made a rod for its own back over the £28bn green spending pledge as a long internal debate over whether Keir Starmer should jettison the headline figure rumbles on.

On Thursday, hundreds of business representatives gathered in London's Oval cricket ground for an audience with Starmer and Shadow Chancellor Rachel Reeves. It was the latest in a series of events where Labour's leading duo have met with some of the country's most influential financial big-wigs. For Starmer and Reeves – widely expected to become the next prime minister and chancellor – it was another opportunity to hammer home their message that Labour plans to be a pro-business government.

But the conference was overshadowed by growing uncertainty over one of Labour's integral economic policies. Was the plan to spend £28bn a year on green investment, first announced by Reeves at the 2021 Labour Party conference, still the plan? Or had relentless Tory attacks on the pledge, which had already been watered down to extend across a parliament, driven the safety-first Labour leadership to scrap the headline figure?

In an interview with Sky News on Thursday, Reeves did little to quell the growing speculation, dodging ten direct questions by Beth Rigby about whether the £28bn figure had been binned. Instead, the shadow chancellor repeatedly stressed the importance of Labour's fiscal rules when it comes to generating policy. 

PoliticsHome understands that the Labour leadership has decided to ditch attaching the £28bn figure to their green investment pledge as it's become an easy target for Conservative strategists devising attack lines ahead of the next general election, which must be called this year.

"It’s pretty obvious it was a mistake to put a number on the policy," said a senior Labour insider.

On Friday shadow chief secretary to the Treasury Darren Jones made the most explicit statement yet that Labour has indeed decided to do away with the figure. He told Sky News the overall spending number would "move around just as a matter of fact", and would depend on the state of the economy that a Labour government would inherit. 

Instead it is understood that Labour will focus on the policies it has already announced as part of its green agenda, like the creation of a publicly-owned energy company, GB Energy.

Josh Simons, Director of Starmer-linked think tank Labour Together, said the £28bn figure was "already dead" when Reeves started to emphasise the importance of Labour's fiscal rules.

“That is what it means to say the fiscal rules come first. In policy terms, emphasising the primacy of the fiscal rules already kills the number," he told PoliticsHome. "But politically it may need more." 

PoliticsHome understands there has been a divide at high levels of Labour about whether the party should stick with the £28bn figure despite Tory attacks. Far behind Labour in the opinion polls, the Conservative party has sought to paint the pledge as a major tax rise in a bid to re-heat tried-and-tested attacks on Labour's economic competence.

On one side, Reeves, Labour's campaign co-ordinator Pat McFadden and highly-influential Starmer aide Morgan McSweeney have pushed for the figure to be binned. They argue that the policy was announced at a time of significantly lower interest rates, but that following former prime minister Liz Truss' economic antics, they must take a more fiscally conservative approach.

On the other, Shadow Energy Security and Net Zero Secretary Ed Miliband has led calls for Labour to stick to its guns and retain a commitment to the headline figure. Miliband, a former leader of the party, enjoys support particularly from MPs on the left who have struggled to warm to Starmer. Clive Lewis, the MP for Norwich South, wrote in The New Statesman that the £28bn figure should be the "start" of Labour's green investment agenda.

According to one Labour source familiar with this internal debate, for a number of weeks there has been a "weird impasse" over an "unresolved argument" within the higher ranks of the party: "Can Labour win a general election on a policy of borrowing to invest?".

Senior figures in Labour circles who agree that the £28bn figure should be binned are frustrated with how the party has approached the question. Reeves has suggested that the party might wait until after the Spring Budget on 6 March before taking a final decision, but that is over four weeks away. 

“It is the slowest u-turn in political history,” said one former Labour adviser. "You either explain it or you drop it, and they are not doing either of those things at the moment.”

More sanguine Labour figures say business leaders like those who assembled in the Oval on Thursday aren't bothered about the headline figure and are more interested in the actual policies. 

“It’s just a Westminster thing. I don’t know why it is a story," complained one shadow minister.

“Everyone knows that we are transitioning to net zero and everyone knows that the cost of borrowing has gone up. Both of those things are true."

According to Simons, it is possible that the saga ends up being helpful for Labour as it will be a way of further demonstrating their commitment to fiscal responsibility.

"A more positive way of seeing this is if there are months of public debate about whether Labour will drop the number, then a big 'bye bye' moment when Labour kills it because the Tories crashed the economy, all they are doing is drawing attention to how seriously they take fiscal responsibility.

"The message people hear is Labour really do want to do this, but they know they can’t, so they won’t. That is a message about fiscal credibility," he told PoliticsHome.

However, Scarlett Maguire, Director at JL Partners Polls, warned that appearing to voters like they are dithering could end up undermining Labour's bid to look strong on the economy.

“We know that historically people have been sceptical about Labour’s handling of the economy. It tends to be the biggest hesitation for people about voting for them," she said.

"But this Labour Party has done such careful work to make Rachel Reeves look competent that I’m not sure they needed to cave on this one. And this potential perception of weakness and indecision could actually undermine the image of economic competence they are going for."

Luke Tryl, UK Director at More In Common, said that by dropping the figure Starmer risks fuelling a public concern that he "doesn't stand for anything", widely considered to be one of the Labour leader's key weaknesses.

“The risk is being seen as all about expediency with nothing behind it. The thing that has come up in focus groups is: ‘Why can’t they just make their mind up?’..." he explained. 

“In a general election campaign year, nuances like ‘we’ve dropped the figure but kept the policies’ just don’t cut through. What cuts through is the figure is gone. That’s the failure here."

He added that while Labour remains in a strong position to win the upcoming general election, with polls continuing to give the opposition large, double-digit leads over the Tories, the party risks misreading the public mood and under-appreciating the desire for major change over a more-of-the-same approach.

“You combine this with the announcement this week that they will not reinstate the cap on bankers’ bonuses, and there’s a danger here that Labour is misunderstanding the mood of the country," Tryl added.

“It seems like they think it’s Labour coming into power in the 90s, when people did generally want reassurance, but we’re in a very different paradigm now — one where people think large parts of the country just aren’t working.

"That doesn’t mean going full Jeremy Corbyn, and to that point the announcement this week about corporation tax makes sense, but the stuff on bankers' bonuses and ditching the green figure feels like reading from a 90s playbook.”

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