Dropping of £28bn pledge marks a shift in Reeves’s entire economic philosophy | Labour

When Rachel Reeves announced Labour's £28bn 2021 climate plan, she was so convinced it was the right thing to do that she issued a dire warning about what would happen if the project was delayed or reduced.

“The greatest cost to our public finances, as well as to our planet, will be if we delay and let costs pile up for future generations to pay,” she told a packed audience at the conference party in Brighton.

On Thursday, Reeves stood alongside party leader Keir Starmer in front of around 30 journalists in a drafty chamber of Parliament and spilled the beans. The £28 billion was gone, and so was the reasoning behind it.

“We want to create jobs in Britain, reduce energy bills, strengthen our energy security and also decarbonise the economy,” Reeves told reporters. “If you don’t need to spend £28 billion on it, that’s great.”

The reversal of Labour's central economic and environmental policy came after weeks of agonizing decision-making by Starmer and Reeves, working with Ed Miliband, the shadow energy secretary.

Confirmation on Thursday that the policy would be halved from its original scale is a key moment in Starmer's leadership and could redefine the election campaign.

It also marks a shift in Reeves' entire economic philosophy. The shadow chancellor no longer advocates public investment as a way to stimulate the economy and galvanize private capital. Instead, she says she wants to achieve Labour's green goals using as little public money as possible.

The story of how this shift happened in just over two years is indicative of Starmer and Reeves' broader shift in approach in that time, as they adopted a series of U-turns to trying to get rid of the baggage they had. fear could weigh them down during an election campaign.

From determination to doubt

Reeves' initial 2021 announcement was seen in senior Labor circles as a triumph.

The Brighton conference had been eventful so far. The party had been plagued by divisions between Starmer and Miliband over whether energy companies should be nationalized. High-ranking figures had been followed everywhere they went by protesters calling for a “green new deal”. Party members had defied the leadership by voting for a motion calling for a “green and socialist new deal”.

Reeves' announcement put an end to all that, responding to criticism that Labor lacked a green policy and economic strategy.

“I am committing the next Labor government to invest an additional £28 billion in our country’s green transition for every year of this decade,” she told delegates. “I will be a responsible chancellor. I will be Britain’s first Green Chancellor.”

Labor stuck to the plan for several months. At the party conference a year later, Starmer announced that a significant portion of the money would be spent on a new national energy company, known as Great British Energy. Other plans included a new sovereign wealth fund to invest in green projects and a £6 billion-a-year home insulation program to improve the energy efficiency of 19 million properties.

Gradually, however, senior Labor officials became nervous. After Liz Truss's turbulent 45 days in power, Labour's pitch to voters was no longer to be the party of radical change, but rather to provide reassurance where the Conservatives offered turmoil.

Truss' economic plans, coupled with the war in Ukraine and rising inflation, have seen interest rates on UK government debt rise from just over 1% at the start of 2022 to 4.5 % in mid-2023.

Reeves was increasingly concerned about the economic consequences of the £28 billion policy, particularly after a crucial meeting she had in Washington DC in June 2023 with Janet Yellen, the US Treasury Secretary. People briefed on that meeting told the Guardian that Yellen warned Reeves about the Biden administration's mistake in announcing major new climate investments without first reforming planning laws so they can be built .

Reeves returned from that trip determined to make a change. She wrote an article for The Times announcing that the £28 billion figure would not be reached until the second half of the Parliament, and that it would only be reached if Labor could keep its promise to reduce the debt as a percentage of economic output at the end. over a period of five years.

Given that forecasts at the time predicted that the government would only be able to borrow an extra £6 billion a year while reducing its debt over that period, Reeves' announcement virtually killed his original policy.

Decision time

And yet Labor politicians continued to use the £28 billion figure, putting the party in the awkward position of defending a figure they had no intention of reaching and could not say how it would be achieved. would be spent.

Shadow ministers and advisers began to present their ideas on how to change the policy. Some wanted to throw it out completely. Others wanted to use the money to fund other capital projects, like new schools and roads. Some have suggested consolidating all existing spending commitments into one bill and dropping the rest.

As Starmer's entourage argued over what should happen, the leader continued to publicly defend him. “It is absolutely clear to me that the Conservatives are trying to weaponize this issue, the £28 billion,” he said in January. “That’s a fight I want to have… If they want that fight on borrowing to invest, I’m absolutely up for that fight.”

However, privately Starmer was becoming convinced of the need for change. He, Reeves and Miliband began working intensively on a compromise that would protect existing projects such as GB Energy and the sovereign wealth fund, but scale back the home insulation program and make it clear that no additional spending would be announced.

Labor officials insisted Thursday that the three men had drawn up the plan together, playing down rumors of a split at the top of the party. The final decision was taken jointly only a few days ago, they added.

Some Starmer advisers urged him to wait until Jeremy Hunt's budget to make the final decision, not least because the chancellor was promising further tax cuts which would reduce the borrowing margin even further.

The Labor leader had, however, asked shadow ministers to prepare their policy agenda by Thursday in the event of an election in May, so he knew a decision would have to be made by then. Furthermore, reports from the Guardian and elsewhere about the fate of the £28 billion were making it increasingly difficult to stay the course.

“Today is the deadline for the shadow cabinet teams to submit their proposals and fully fund them so we can begin the next stage of the manifesto process,” he told reporters on Thursday. “We knew we had to make a decision on this around now.”

Political ramifications

The U-turn ultimately angered environmental campaigners and some MPs, including former shadow energy secretary Barry Gardiner, who called him “economically illiterate, environmentally irresponsible and politically insignificant”.

And while the party has reaffirmed its commitment to parts of its investment plans, important questions remain. Can Labor really decarbonise the UK energy sector by 2030 with this level of spending? What does cutting the home insulation program mean for the legal obligation to eradicate fuel poverty by 2030?

Many Labor members, however, expressed relief at the change. “At least we know what the current policy is,” said one shadow minister. “At least we have something to defend.”

But if Labor believes it now has something to defend, the Conservatives insist they still have something to attack.

Rishi Sunak's top advisers insisted on Thursday they intended to continue using the £28bn figure, arguing Labor should end up spending that much when they realize they could miss their green targets . “Nothing has changed,” one said.

But a sign that Starmer's announcement on Thursday made life more difficult for his opponents, the Conservatives simultaneously accused him of making another “about-face”.

“The problem is that the Conservatives must now decide,” said a Labor official. “Has nothing changed, or have we turned around? They cannot succeed in their attack.

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