Labour’s political credibility questioned after green spending U-turn

Sir Keir Starmer on Friday was accused of shredding his political credibility and his hopes of converting Britain to “clean power” by 2030, after the Labour leader junked the party’s flagship £28bn green investment plan.

The slow-motion scrapping of Starmer’s most expensive policy was ridiculed by Conservative Prime Minister Rishi Sunak, who said Labour’s plan for government was “in tatters”.

Starmer finally dismantled the plan on Thursday after the party had spent several months rowing back on its original commitment to spend £140bn during its first five years in office should it win the general election later this year.

But energy experts said by reducing the annual spend on green projects to just £4.7bn per year, Labour had replaced one incredible policy with another after shadow chancellor Rachel Reeves insisted Britain could still convert to “clean” electricity production by 2030.

“Even with £28bn 2030 is not going to be achieved but, without it, this will be even more difficult,” said Sir Dieter Helm, professor of economic policy at Oxford university, who has advised the government on energy policy.

Helm added: “Having set an unachievable target, and then come up with an incoherent plan to achieve it, the plan has effectively been abandoned but the target remains. This is not a credible energy policy.”

Mick Farr, chief executive of gas-fired power plant owner Triton Power, said the 2030 target was “impossible even with unlimited funding”, adding: “Is it too much to expect people that set or challenge energy policy to be realistic?”

Reeves admitted Labour’s target of ensuring that all UK electricity comes from low-carbon sources by 2030 was “ambitious and stretching” but insisted in a BBC interview that it could be achieved.

She said wind, solar, tidal and nuclear would provide most electricity generation in 2030, with carbon capture and storage — a nascent technology — capturing emissions from remaining gas-fired power stations.

Starmer reluctantly took the decision to can his £28bn annual green spending pledge after it had descended into farce where Labour shadow ministers were continually forced to pretend that the party could fund it.

Instead, he backed Reeves, who had been arguing for months that the policy could not fit within the party’s borrowing rules. “Keir didn’t want to give it up,” admitted one shadow minister.

“I would much rather be straight with the British public than make a promise I can’t keep,” said Starmer, who earlier this week had denied he was “scaling back” his plan.

Reeves had announced the ambitious plan in September 2021, just before interest rates started rising from close to zero to the current rate of 5.25 per cent, making such lavish borrowing unaffordable.

Jeremy Hunt, chancellor, recognised as long ago as last March that Britain could not afford to get into what he called “a distortive global subsidy race” with the US after President Joe Biden announced his $369bn green subsidy plan.

Starmer and Reeves had hoped to wait till the Budget on March 6 to scrap the plan, when they would have argued Hunt’s proposed tax cuts would “max out the country’s credit card”, leaving no space for new borrowing.

Apart from the fact that the Budget is still almost a month away, Starmer recognised another problem: Labour is expected for electoral reasons to back any income tax or national insurance cuts that Hunt announces.

“It’s all very well for Starmer to talk about us adopting a ‘scorched earth policy’,” said one Tory official. “But how do you then explain that you’ve just voted for it? What comes first — tax cuts or green investment?”

Boxed in by fiscal reality, Starmer and Reeves have recently shifted from massive state support towards planning reforms and efforts to speed up grid connections to attract private investment in the energy transition.

Reeves said Labour had also prioritised within their shrunken green prosperity plan policies intended to “crowd in” private investment.

A state-owned energy company called GB Energy will cost a one-off £8.3bn and a £7.3bn “national wealth fund” will be set up to invest in the decarbonisation of heavy industry.

Meanwhile extra spending by Labour on the government’s existing Warm Homes insulation scheme, seen as one of the most cost-effective ways of tackling climate change, will be cut from £6bn to just over £1.3bn a year.

Donal Brown, director of UK programmes at climate solutions charity Ashden, said a “proper programme for insulating homes could save £24bn” on energy bills by 2030 and create thousands of jobs.

Bob Ward, policy director at the Grantham Research Institute on Climate Change at the London School of Economics, said one of the biggest challenges facing Labour after dismantling its plan was convincing the private sector the party was still serious about tackling climate change.

“This long drawn-out argument and the confused messaging has made private investors think: ‘These guys are just like the current government, cutting and changing policies with no consistent direction’.”

But Starmer and Reeves this week made a decisive choice, putting fiscal discipline ahead of grand schemes to save the planet.

Labour’s announcement came on the same day as scientists said the average global temperature had for the first time breached the critical benchmark of 1.5C above pre-industrial levels over a 12-month period.

In an election year, with a 20-point opinion poll lead to protect, Labour is making tough calls.

For Sunak, the whole debacle has given him another opportunity to accuse Starmer of being a political “weather vane” or — in the words of the Tory election chief Isaac Levido — a “flip-flopping chameleon”.

But Starmer belatedly concluded that bowing to fiscal reality was the best political course of action to head off Tory election claims that Labour would preside over a binge of borrowing, followed by tax rises.

“We’re not going to let them run a ‘Labour’s tax bombshell’ campaign again,” said one ally of Starmer, recalling the devastatingly effective Tory attack on Labour ahead of the 1992 election, which the Conservatives won.

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