The next Labour government, as with all governments, will be a battleground.
And investment for green jobs will be a particularly sharply-contested battleground.
Rachel Reeves has now announced changes to Labour’s green prosperity plan, so that the policy of a Labour government spending £28 billion a year has shifted - to one of a target of that figure by the second half of the parliament.
What does this mean for a Labour government?
Labour has given two reasons for pushing the £28 billion policy to the second half of a parliament. The first is that Britain does not have the capacity to jump straight to the top end of the pledge – so that the state, supply chains, private sector, skills and so on are not in the right shape to proceed that rapidly.
But the dominant feature of the coverage has been on the second reason - fiscal responsibility and the cost of borrowing.
A Labour government is going to be characterised to a heavy extent by an argument over what its fiscal rules permit. If, in government, the non-negotiable fiscal framework clashes with the green investment programme, even as now amended, everything that Rachel Reeves has been saying points to the fiscal rules winning out. As Sky noted, speaking to BBC Radio 4's Today programme, Rachel Reeves said:
‘The Tories have crashed our economy, and as a result interest rates have gone up 12 times, inflation is now at 8.7% and I've always said our fiscal rules are non-negotiable.
‘Economic stability, financial stability, always has to come first and it will do with Labour.’
The problem is that major change is needed. However bad the economy gets, that fact is not going to alter. To paraphrase Tony Benn, the crisis is the occasion for fundamental change and not the excuse for postponing it. It is quite plausible that the economy could worsen further. The scale of change required is far greater than the last time Labour took office. We are living with a combination of the consequences of the pandemic, with the impact of austerity, the monumental challenge of the climate, and the unprecedented cost of living crisis. The former adviser to John McDonnell, James Meadway, has argued that purely financial constraints, like rising borrowing costs, can typically be met by a rich country, if there is the political will to do so.
Even before a Labour government is elected, the battleground over green spending and the battle over the fiscal rules are being played out. Greenpeace reacted by to Rachel Reeves’ announcement by warning that “any delay on green investment would be a HUGE mistake. It's bad economics to say we can't afford it when it pays for itself, boosts the economy, lowers bills and tackles the climate crisis. Labour: don’t let this go.” The New Economics Foundation thinktank has argued that the ‘haze of smoke across North America shows us what life could look like if we don't get serious about the climate crisis. Now is not the time for political parties to roll back commitments on investing in a prosperous, green future.’
The future of Labour’s green prosperity plan within Labour’s programme has in fact been the subject of a sustained campaign of speculation and negative briefings to and in the media for many months.
Last November, in response to an interview in which Shadow Levelling Up, Housing and Communities Secretary Lisa Nandy reiterated support for the policy, former Shadow Chancellor Ed Balls pushed back on the commitment, arguing that ‘If it looks like climate change is the exception, the thing where we’re allowed to borrow with debt rising, that will be a big problem for Labour’. Peter Mandelson derided supporters of a big green programme as ‘those who believe that all Labour needs is to give Starmer a “bolder” definition by turning him into a British version of the environmental activist Greta Thunberg’; and as the spring has unfolded the number of articles containing question marks over the policy has increased. John Rentoul for the Independent has questioned the green prosperity plan for some time, and last month wrote ‘we are still waiting for the big one: the U-turn on the £28bn-a-year Green Prosperity Plan. It feels as if that supertanker is turning round, but in the dark. The phrase was not used in the briefing document for Labour’s five “missions”, launched in February, which included: “Make Britain a clean energy superpower.”’
Ed Miliband, the Shadow Climate and Net Zero Secretary, has been on the receiving end of persistent briefings against the green prosperity plan.
It should be noted that the principal ally of large-scale investment within the Labour membership is the broad left of the party, but the left is under relentless attack from the leadership. Within the party, the weight of the more ‘Blairite’ opponents of the green jobs spending policy has been reinforced by the objective of isolating the left.
As speculation about the green investment plan increased last week, Jim Pickard and George Parker argued in the Financial Times it was the party’s most far-reaching policy:
‘Little remarked upon until recently, Starmer put his most radical proposal on the table back in September 2021 — a plan to borrow £28bn a year until 2030 to spend on green transition policies such as subsidising wind farms, insulating homes, building battery factories and accelerating Britain’s nuclear programme. It will be by far the most costly policy in Labour’s draft manifesto for the next election, currently dwarfing in financial terms its plans to improve Britain’s creaking schools, hospitals, police and other public services.’
The FT went as far as to characterise the green prosperity plan as going further in relative terms than Biden’s Inflation Reduction Act:
‘In fact, the Labour plan, as currently conceived, is even more ambitious than the US IRA in relative terms. Labour’s green subsidies would cost £28bn a year against Washington’s proposed $37bn a year — even though the US has five times the population and eight times the GDP (although some estimates put the cost of the IRA’s incentives much higher).’
But now the £28 billion commitment has been pushed to the second half of the parliament. Labour has not said precisely what the second half of the parliament means.
By indicating that spending would ramp up year-by-year, Rachel Reeves has started a new argument - by how much would it ramp up and over what timeframe? More detail is required. The Labour leadership may seek to clarify its position after Jeremy Hunt’s next fiscal event. Rebecca Newsom of Greenpeace argues that the Labour party must ‘stand by its £28bn-a-year green investment pledge without delay, and put forward a roadmap for how the money will be spent in the run-up to the next election – so voters can be sure the party really means what it says.'
A debate on when and how to hit £28 billion is bound to centre on the tension between the stated objective of reaching the target and the clearly stated positions on fiscal responsibility and rules.
It is inconceivable that the pressure on the green prosperity plan will end simply because it has now been altered. On the contrary, criticism is likely to be maintained and expanded out to other areas of policy. After Rachel Reeves’ announcement, the Guardian reported that ‘Labour has also been looking closely at how to keep other areas of major spending within its fiscal rules. Insiders said the party had been looking to “make sacrifices” in areas it had already flagged as important to demonstrate its focus on economic credibility.’
Through the green prosperity plan, the party leadership has now opened a debate that will dominate how an incoming Labour government acts and is seen to act. On the one side will be constant pressure from conservatives and the right in the Labour party urging the government to scale back the green spending position yet further; and on the hand pressure for faster and higher spending will come from the left, the wider labour movement and the climate movement.
A key focal point for these debates will be fiscal responsibility.
All of this goes to the political character and prospects of an incoming Labour government. Many governments face pressure to choose between how far to give priority to measures that raise the living standards of working class people through their spending power; and how far to use resources available to you to invest for the long term. Sometimes there is a tension between these two in which one loses out to the other. It is self-evident that a society that does not invest heavily is not going to generate the change that is needed to move beyond the status quo, let alone deal with climate change. But parties that ask people to wait for their material living standards to rise risk tearing their own support from under them - and turning public opinion against other aspects of their programme. Economic policy should not hold back or reduce the living standards of the majority of people but instead be aimed at improving their position.
For some time, Labour’s response to these questions has involved giving the clearest signal that it expects people to wait for growth before any improvement in their immediate living standards. Labour has given no major commitments to resolve the wages crisis in the economy. Nor has it set out an aggressive policy agenda to correct the collapse in household incomes, through such mechanisms as price controls or an expansion of universal free services. By saying to public sector workers such as nurses during their current disputes that their pay claims are unaffordable, Labour has laid down a marker about spending in the public services. To almost every question on spending and pay, the answer is that growth comes first. That answer has consequences for recruitment and retention in sectors such as nursing and teaching. Labour will come to power asking people to wait on an open-ended basis for their household incomes to be restored, if at all: wait for growth.
Now, with the position on the green prosperity plan and the weight of the fiscal rules there is a new dimension. What if Labour is risking both problems? Major investment programmes have a range of timeframes for delivery. Many decisions take years to work their way through to completion. Fiscal rules loom. What if an incoming Labour government both fails to deal sufficiently, or at all, with the collapse in household disposable incomes: and yet also puts off too much medium-to-long-term spending to a point late in the parliament that means too few people see a return by the time of the next election?
Finally, specifically on the green investment policy: it is not hard to see that a vocal lobby will build up aiming to tie spending to a bonanza for the private sector, leading to a bigger debate about the role of the public and private sectors in the development of green jobs.
The contours of political stresses and conflict under a Labour government are becoming more visible. A potentially volatile tension is built-in between the bottled-up needs of the economy and climate, and the tendency of orthodox politics and economics to stifle action.
What is posed provides the conditions for a combination of movement pressure go further and faster. That is, the conditions for a movement for higher wages and improved household disposable incomes; with a movement for bigger spending on investment, action on climate change, and funding for public services.
Thinking through what that means for organisation, alliances and policy should become a priority for anyone who wants to go beyond the present political ‘common sense’.