Starmer’s decision to finally surrender his position on his £28 billion-a-year green investment plan effectively ends hopes for a transformative Biden-style package of the type advocated by Ed Miliband (who originally put the figure forward before he joined the Shadow Cabinet, almost four years ago, in a report for the IPPR.)
Britain will now fall behind other European nations like France where Macron has committed to invest €30bn-a-year in the energy transition and Germany where the government will invest €60 billion this year.
Nevertheless, today’s pared back package from Starmer and Reeves still means Labour will be putting forward the largest green investment package presented by either of the two main political parties at a general election. The Institute for Fiscal Studies (IFS) says existing government spending plans in this area would see around £8bn a year invested over the next five years. (Others think the real figure is closer to £10bn p/a.) Today’s Labour proposals would do an additional £23.7bn over the course of the Parliament on top of that.
Clearly this is nothing close to the number Starmer said he was committed to earlier this week and it will raise big questions about his vision for the country and how he expects to grow the economy. Nevertheless - in policy terms, if nothing else - it still keeps open a big green dividing line with the Conservatives, especially when taken together with Labour’s renewed promise to block new oil and gas licences and impose a tougher-than-planned windfall tax on fossil fuel giants. It means Big Oil will now pay for around half of the plan.
Are climate goals now at risk?
Analysis by the independent Committee on Climate Change suggests the revised investment plan may yet be sufficient to put Britain on track to achieve Net Zero targets. The CCC last year totted up what’s needed to achieve Britain’s climate targets for the 2030s and calculated:
"The priorities we identify in this report for Exchequer support imply around a doubling in annual public funding to £9-12 billion by 2030, depending on policy choices."
Under today’s revised plans this level of investment would still be met or even exceeded. (But the Office for Budget Responsibility thinks the figure required could be £20bn a year, meaning Labour's revised proposals would not be sufficient.) Much will depend on what other measures they put in place beyond spending this money.
So what’s left?
It goes without saying the £28 billion number was never as important as what it was supposed to deliver.
Families struggling with their energy bills will be hit hardest by today’s changes given that the biggest cuts (relative to the previous iteration of Labour’s plan) are pretty much all to schemes for insulating homes. This is a huge cut, but still leaves Labour proposing to invest £13.2 billion over the next five years on insulation, which exceeds the £9.2 billion that Boris Johnson’s manifesto put forward in 2019. It amounts to precisely double what Sunak is proposing to do in the next Parliament. It is also a significantly higher figure than anything any previous British government has invested in this area.
Starmer and Reeves have also reaffirmed today their “mission” of building a wholly carbon-free power system by 2030. This goal, based on modeling by the think tank Ember, looks increasingly difficult to achieve because of the delays in getting Hinkley online. But today’s announcement that plans for a new public energy company, GB Energy, will move forward with an initial capitalisation of £8.3bn should help leverage in significant private sector investment to more renewables. So too will their re-commitment to the British Jobs Bonus fund worth £500m per year. The IFS says the bulk of the cost of cleaning up the power sector will be courtesy of cheques from the private sector, and most experts agree with that, so today's reduction of the overall envelope for green investment should not endanger this mission.
Steel unions and green groups joined forces to back Labour’s proposal for building primary green steel production via a National Wealth Fund so both will be relieved to see this survived Reeves’ axe. Proposals to invest in electric battery factories to help Britain’s auto sector compete on manufacturing electric cars also survived. (Something that is arguably a political no-brainer given the auto jobs under threat in swing seats in the Midlands.)
Given even Tony Blair slipped behind in the polls when farmers brought chaos to refineries and motorways in the early 2000s it surprises me that, against the backdrop of unrest elsewhere in Europe, Labour’s revised package includes no apparent additional investment to support farmers struggling with high costs. There are clear economic opportunities from helping Britain’s farmers to modernise the equipment and buildings they’re using and upgrade the additives and feedstocks too. Rewarding farmers for storing carbon on their land could also boost rural tourism and lower flood risks so I could see Labour revisiting their policies in this area (even if they refuse to revisit other related fiscal choices this side of the election.)
Ultimately, whatever is eventually invested is meant to drive growth and ensure Britain can still capture some of the economic opportunities from clean industries as the world moves to Net Zero. With America and China each investing around a trillion dollars in the transition, and with the EU announcing plans just this week to double down on emission reductions to stay competitive, the kinds of sums now on display from both Labour and the Conservatives will mean whoever wins the election will have to be incredibly thoughtful about their wider industrial strategy, and what other new policies they enact that don’t cost taxpayers, if Britain is to have any chance whatsoever of keeping up.
Add as many renewables to the grid as you like the wholesale electricity price will still be set by the global gas price.
Until the electricity market structures are changed the price is set by the most expensive generator - that’s currently gas fuelled power stations.
Don’t fall for the ultra simplistic explanation of how the electricity system works.