Labour’s screeching green U-turn completes stunning return to the centre ground

The shadow chancellor Rachel Reeves has reinforced a reputation for prudence matching that of Gordon Brown and New Labour – her latest smart manoeuvre shows an expert hold on the wheel, writes John Rentoul

By drawing attention to Liz Truss’s disastrous experiment with unfunded tax cuts, Rachel Reeves (R) is making the point that the markets will constrain what a Labour government can do (PA Wire)

This is a big moment for the Labour Party. Rachel Reeves, the shadow chancellor, has just completed the seizure of the centre ground of British politics. On the BBC’s Today programme this morning, she abandoned her policy of big borrowing for green investment.

She ingeniously managed to blame the government for the U-turn, saying: “I did not foresee what the Tories would do to the economy – maybe that was foolish of me.” But she accepted that Labour would be unable to borrow as much as £28bn a year in the early years of government and that “financial stability has to come first”.

It has taken a while for this penny to drop. I commented after Jeremy Hunt’s autumn statement in November, in which the chancellor invented a new fiscal rule, limiting annual borrowing to 3 per cent of national income, that if Keir Starmer accepted it, this would mean “Labour’s great big £28bn-a-year green investment plan has gone out of the window”.

In fact, Reeves hasn’t accepted the rule, calling it an “arbitrary” cap that mixes borrowing for day-to-day spending and borrowing for investment, but today she accepted a more important political rule, which is that Labour cannot go into an election promising to borrow more than the Conservatives, whatever that borrowing is for.

The green wing of the party is disappointed. What is the point of voting Labour if it won’t invest more than the Tories, they ask. To which Reeves’s reply is that green investment is still central to the plans for a Labour government, but “we can only deliver it on a rock of economic stability”. In other words, it hasn’t been ditched, but it must be phased in so as to avoid spooking the markets.

To the cries of “Sellout!” from those who want her to “go big”, her reply is the calm voice of fiscal responsibility – the recognition of economic realities on which Gordon Brown and Tony Blair built their successful electoral strategy a quarter of a century ago. But times have changed since then, protest the enthusiasts for the different world that they say is possible. So they have, says Reeves: the economic situation is much worse now than it was in 1997.

She is smart to blame the Conservatives “crashing the economy” for the modesty of Labour’s ambition. By drawing attention to Liz Truss’s disastrous experiment with unfunded tax cuts, Reeves is making the point that the markets will constrain what a Labour government can do.

She is not going to take any risks with the market, and she and Starmer are not going to take any risks with the voters either. Most voters haven’t even noticed the party’s Green Prosperity Plan. They are not aware of the £28bn figure. It is not as if Ed Miliband’s enthusiasm for decarbonising the UK’s electricity supply has set the electorate alight with a burning desire to vote Labour. The party’s lead in the opinion polls comes from people’s low opinion of the Conservatives, and a sense that Starmer – and Reeves, whose reputation is growing – offer competence and stability.

But as “more and more people are looking to us as a government in waiting”, as a source close to Reeves put it to me, the £28bn-a-year promise was becoming more of a problem. In recent weeks, as Starmer prepared to announce details of Labour’s green “mission”, it was becoming clearer that the policy would be a liability if the voters learnt about it in the heat of an election campaign. The Conservatives had already picked up the warning from the impeccably impartial Institute for Fiscal Studies that extra borrowing would push up interest rates and further stoke inflation.

“We have to show that we are preparing to take the tough decisions”, said the source, which means recognising that the economic situation is very different from two years ago, when Reeves made the £28bn pledge.

Ditching the £28bn figure – I’m sorry, I mean “phasing it in” – is essential to reinforcing Labour’s credibility with swing voters tempted to bolt for the safety of Rishi Sunak and Jeremy Hunt’s soothing claim to have restored calm competence after the adventures of last year.

Significantly, Ed Miliband, the shadow energy secretary and leader in the shadow cabinet of the Go Big tendency – Go Big is the title of his book – has accepted the disappointment of his ambitions. Last week, he tried to rebrand the green prosperity plan as a jobs plan rather than a climate-change policy. But his aim is for the plan to “support” 500,000 jobs, a strikingly modest uplift of the government’s target of 480,000 jobs.

The significance of Reeves’s announcement today is that it confirms her rising power in the Labour government-in-waiting, underlined by her memo to shadow cabinet colleagues this week, telling them bluntly: “There will be no unfunded spending commitments – if something is not signed off, it is not policy.”

She is as powerful as Gordon Brown, without the psychological flaws, as she and Starmer ruthlessly pursue the New Labour path to the election.