Labour’s green U-turn shows Starmer doesn’t want UK Inc to go into the red

For more than a year, the party has been trapped defending a meaningless number – now it can advocate the actual policies needed to deal with climate change, writes John Rentoul

The U-turn has provoked dismay from many in the party and from green pressure groups, but they have had enough warning that it was coming, and failed to make the case against it (Getty Images)

On Tuesday, Keir Starmer said he was “unwavering” on Labour’s clean power mission: “That’s where the £28bn comes in … we need to borrow to invest to do that; that’s a principle I believe in and I’m absolutely happy to go out and defend.” On Thursday, his line was: “What £28bn?”

Abrupt though the final stage was, this has been one of the longest and most signalled U-turns in British political history. Some commentators noticed that Labour had a problem 16 months ago when Jeremy Hunt rescued the public finances from the wrecking ball of the Truss-Kwarteng interregnum. In doing so, he set out plans for tax, spending and borrowing that left no “headroom” over the following five years.

Given that Rachel Reeves, the shadow chancellor, had already accepted the “iron-clad” straitjacket of promises to cut debt by the end of a five-year parliament, and not to raise taxes, she was bound to be asked questions about her plan to borrow an extra £28bn a year for green investment.

She answered them last summer by saying the plan wouldn’t start straight away if there was a Labour government, and that the £28bn would be subject to her rule that debt had to be falling after five years. So if Labour won the election, it would eventually invest £28bn a year only if the economy had grown by more than the Office for Budget Responsibility’s forecast – which would provide the money that would allow Reeves to afford it.

That should have been the end of the policy. Reeves and Starmer should have switched from defending a number to advocating the policies it was intended to pay for. Starmer certainly tried, talking about Labour’s “mission” to decarbonise the UK’s electricity supply by 2030. It is an implausibly ambitious objective – which is a separate argument – but Labour could never focus on it because it refused to let go of the £28bn figure.

It was now Schrodinger’s number: it was still Labour’s formal policy, but it had been qualified by Reeves so that it would either exist or not exist in the future, depending on the path of economic growth – about which OBR forecasts have tended to be too optimistic.

She has wanted to disown the £28bn explicitly for months now but was delayed by a fierce rearguard action put up by Ed Miliband, the shadow energy secretary who sees himself as the green conscience of the future Labour government. Starmer leaned in Reeves’s direction, advised by Pat McFadden, the shadow cabinet minister in charge of Labour’s election campaign, and Morgan McSweeney, Starmer’s long-time aide.

Sue Gray, Starmer’s chief of staff, tried to maintain shadow cabinet unity, but in the end, Labour either had to stick to the number or repudiate it. It was no use having the number as an ambition, to be achieved “as resources allow” – a favourite phrase of Labour fudges past – because as long as Labour was nominally committed to it, the Conservatives were always going to accuse Reeves of intending to put up taxes to pay for it.

The U-turn has provoked dismay from many in the party and from green pressure groups, but they have had enough warning that it was coming and failed to make the case against it.

Some of the dismay has come from unexpected quarters, such as John McTernan, Tony Blair’s former political secretary, who said on Newsnight last night: “It’s probably the most stupid decision the Labour Party’s made.” He thought the policy was a “great cause”, that offered a “change from this government” – but it never did because it was just a number.

The more serious criticism comes from economists such as Simon Wren-Lewis who disagree with Reeves’s debt rule. Wren-Lewis argues that borrowing for green investment that produces a return, in the long run, is always worthwhile. But there are two problems with that. One is how you can be sure that the investment will produce a return. In theory, if the return is reasonably certain, private capital should be piling into the transition to low-carbon electricity.

The other is that it is a bit late to be making that argument now. Reeves welded herself into the iron-clad corset long ago, determined, quite rightly, to be a chancellor of unimpeachable fiscal responsibility. She has judged that it is more important to offer the voters reassurance on the public finances than to sell them windy rhetoric about “change”.

It was only 18 months ago, after all, that we saw what happened to a chancellor who tried to pass a budget that tried to defy the laws of economics.