When it was announced over three years ago, Labour’s ‘green investment plan’ shone like a beacon of hope in the UK’s bleak political landscape. In short, the plan offered a real prospect of tackling climate change whilst creating huge numbers of skilled jobs and increased prosperity. Yet Labour leader Sir Keir Starmer will today announce a scaling back of that plan, specifically removing the financial pledge that would have made it happen.
The scheme involved the investment, from the start of a new Labour government, of £28bn every year over the five-year period. Predictably, the Conservative Party and their media allies rubbished the plan, on the spurious grounds that financing it would break fiscal rules (specifically, the requirement to reduce government debt as a proportion of economic output).
Very soon, the shadow chancellor, Rachel Reeves, in particular, and her boss Starmer, appeared to duck and run for cover. In 2023 Reeves announced that the start of the green investment plan would be delayed for two years. And today, as reported in the Guardian and elsewhere, Starmer will confirm that “the party is no longer planning to spend £28bn a year on environmental schemes, given the economic uncertainty caused by the Conservative government”.
But Labour should be crystal clear – and boldly in favour of going ahead with its green deal ASAP. This is made abundantly plain by the progress of similar policies in the USA. President Biden’s Inflation Reduction Act (IRA) constitutes a huge and ambitious programme to reset the US economy whilst driving down greenhouse gas emissions and is already showing positive results.
Wikipedia records that US emissions have been reduced “by an amount equivalent to the combined emissions of France and Germany”. Additionally in December 2023 the Financial Times reported that the IRA, together with another federal act, “had catalyzed over £224 billion in private sector investments and created 100,000 new jobs”.
Conservatives ‘game’ the rules
Part of Reeves’ back-story is having worked at the Bank of England and as an economist in the UK embassy in Washington. Possibly this experience has made her excessively deferential towards ‘fiscal rules’. The latter are the government’s advertised self-imposed restrictions designed to prevent reckless spending.
But Oxford economist Professor Simon Wren-Lewis makes clear that successive Conservative chancellors have not only tweaked the rules to their advantage but then have still gone ahead and ‘gamed’ them. He adds:
“Crucially their fiscal credibility rule makes the distinction between current spending that does need to be covered by taxes in the medium term and investment spending that does not, because future generations benefit from that investment. The Green New Deal is all about investing now to improve the welfare of future generations.”
The Conservative government expects to lose power at the next election and is now engaged in making mischief by putting in place fiscal rules that will render the financing of the green deal very difficult. In this, chancellor Jeremy Hunt and co are assisted by their pals in the right-wing media and the general level of public ignorance about Keynesian economics. For evidence of Keynesianism working, see the two previous paragraphs. As Wren-Lewis comments: “No fiscal rule should be used as a pretext to stop vital work to green the economy.”
Finding the money
Taking that last point, Kate Aronoff has written, “the costs of the climate crisis far outweigh the cost of acting on it”. She quotes a study showing that under present policies, the cost of not going further and faster now in the UK would mean that by 2100 the annual cost of mitigating environmental damage will be £168bn or 7.8% of GDP. A recent Guardian editorial pointed out “New green industries could be worth $10tn to the global economy by 2050. Britain risks being left behind”.
A previous article of mine in Yorkshire Bylines discussed a potential new source of tax revenue that the government might use to help finance the green investment plan. Essentially this involves a one-off tax on the holders of significant wealth. But Reeves has already set her face against any new move to ‘tax the rich’, despite the obscenely unfair way in which wealth has become distributed in the UK.
It is now estimated that leaving the EU has caused the flow of UK national income to fall by £100bn. That hit to our GDP means the Treasury losing out on over £30bn of tax revenue that would be there if Brexit had not happened.
A smart move would be to agree with the EU to align ourselves with the single market, kickstart growth and begin to recoup that missing £30bn. However, Labour under Starmer and Reeves are refusing to consider moving back so closely to the EU. Another opportunity missed.
Labour must re-engage
Why does this all concern me personally so much? For years I have been a Liberal Democrat voter. However, my parliamentary constituency is Shipley and my MP is the right-wing Conservative Philip Davies. In 2019 Labour came within 6,200 votes of taking the seat and probably stand a 50:50 chance of winning at the next election. Labour’s Anna Dixon is a credible candidate whose views and values are close to mine. I would like to vote tactically for her, but given the recent performances of Reeves and Starmer, I will not be doing this with a song in my heart.
Aronoff in her recent Guardian article did not pull her punches. The fate of Labour’s green investment plan was in doubt, in her words, “thanks to the political cowardice of people such as the shadow chancellor, Rachel Reeves”. Aronoff argues that Labour must re-engage with the green investment plan and go full steam for early implementation, “otherwise the difference between Tory and Labour rule will keep getting harder and harder to spot”.
Now that this U-turn on tackling climate change has been confirmed, it will focus voters’ minds even more acutely.