What’s going to be the most important number in British politics next year? Three hundred and twenty-six? – the number of seats for a parliamentary majority? Five – Rishi Sunak’s pledges or Sir Keir Starmer’s missions? Two per cent – for getting inflation closer to the Bank of England’s target?
All of these are naturally important, but none comes close to £28bn – the pledge made by the Labour Party for its annual spend on “green” policies by 2030. It is not merely a humongous sum of money, but symbolic of a much bigger economic debate coming in 2024.
The £28bn pledge is not the hors d’oeuvre to Labour’s offering at the next general election but the main course. It is the only significant spending commitment Starmer has pledged and sits proudly as the second core “mission” for government. Yet the party has found itself in the eccentric position of wanting to talk about it less and less, despite its popularity with many parts of the left. And why? Because Labour knows it has a problem.
Let’s start with where this pledge came from. In June 2021, shadow Chancellor Rachel Reeves pledged to become the first “green chancellor” by spending £28bn a year on combating climate change – the equivalent of a fifth of the whole NHS budget and quadruple the current spending pledges over the same period. The cash would go into capital projects, home insulation being one notable example. At the time, shadow Energy Secretary Ed Miliband happily said it would be paid for by borrowing.
But Reeves came to believe this was a real weakness: a big unfunded spending commitment and an easy target for her opponents. So earlier this year, the commitment was watered down to “ramp up” the investment to £28bn in the second half of the next parliament. They also clarified that it is £20bn of additional spending on top of the £8bn already in place. The party claimed this was about ensuring adequate supply chains were in place, along with the necessary skills. In truth it was about trying to make the sums add up. Yet they still do not.
The picture has become murkier still. Last week, briefings emerged that the £28bn might not be paid for by more borrowing after all, but through taxes. The latest shift is due to the party’s own fiscal rules, an attempt to gain fiscal credibility. They state Labour will “reduce national debt as a share of the economy”. Jumping forward to those shaky forecasts for the end of the next Parliament, and the Office for Budget Responsibility predicts headroom of £13bn by 2028, which is nowhere near enough given the recent measures in the Autumn Statement.
At present, the £28bn is a big black hole. Labour has two options, both of which come with consequences. First is to water down further or junk the spending pledge, reducing the amount of money it wants to spend, or ramping up the spending at an even slower rate. Doing so risks disenfranchising party activists who believe in the commitment. It would collapse the core of the party’s economic agenda.
It also opens up a flank for the Green Party, who pose a similar insurgent threat on the left that Reform does for the Conservatives from the right. The Greens might be able to seize a seat or two by focusing their resources on specific local issues. But if they begin to poll consistently in double digits, the fight in some marginal seats would become much trickier for Labour. Hence why the £28bn has remained in place.
Plus the money is already being allocated. One of the lesser-spotted commitments made by Starmer at his party’s conference this year was the pledge to decarbonise the whole power grid by 2030, five years before the current target and ahead of most developed countries. The UK has made huge strides with its uptake of wind and solar over the past decade, but gas is still responsible for around 40 per cent of the energy mix.
Renewables are a Conservative success story – the world’s largest offshore wind farm was confirmed yesterday – and the party wants 95 per cent of energy to be produced cleanly by 2030. Decarbonising the power grid would mean nuclear and renewables would produce the vast majority of our electricity. The 2035 target is already ambitious, particularly on carbon capture, but pushing it forward by five years relies on supply chains that do not yet exist, skills that need to be developed, and technologies to come to market that are still in their infancy.
Achieving that last 5 per cent is going to be notoriously expensive and hard. It is exactly the kind of stubborn and overzealous net zero commitment that turns voters off tackling climate change. As Onward’s recent research into attitudes on net zero showed, 53 per cent of voters are willing to accept additional costs to reach net zero and 40 per cent are not. That significant minority needs to be persuaded in a sensible and pragmatic way.
Labour’s other option is to keep the pledge and be honest about how it is going to be paid for. Without any viable fiscal headroom, it is either tax rises or spending cuts. The latter seems unlikely, given the party’s other pledges on schools and hospitals; the former would come at a time when the tax burden is achingly high. Neither are especially palatable.
Come the new year, Reeves and Starmer will have to set out which it is. Scrap or keep. Because the pair have said relatively little about what they intend to do with the economy, there has been scant scrutiny of whether their plans add up. But the party can’t hide behind waffly rhetoric for much longer. When Westminster returns after the festive season, refreshed and invigorated for an election year, the focus will shift onto what Labour would actually do in power. Above all else, the £28bn question will finally have to be answered.
Sebastian Payne is director of the centre right think-tank Onward