Labour’s decision to row back on its £28bn green growth plan is being seen by insiders as a “timely injection of sense” to defuse a “time bomb” that could have threatened the party’s election campaign.
Shadow Chancellor, Rachel Reeves, abandoned the plan to spend £28bn every year on green investment, instead saying the amount would “ramp up” before reaching those levels around 2027, rather than coming into force immediately if Labour wins the election expected next year.
The U-turn comes after growing scrutiny of Labour’s plans to increase spending, which it has said will not be funded by a significant increase in public borrowing for day-to-day expenditure, and renewed pressure on the party over fiscal responsibility.
The green growth plan was earmarked as capital expenditure that would not count towards that goal but Liz Truss’s disastrous “mini-Budget”, which increased borrowing heavily to fund tax cuts and energy subsidies, was seen by some senior Labour figures as a warning of the potential consequences of loosening the spending taps.
Ms Reeves told BBC Radio 4’s Today programme she could not give a “final set of numbers” until the Government has laid out its own long-term spending plans and blamed the Tories for “crashing out economy” and contributing to interest rates that are 12 times higher than when the pledge was first made in 2021, dramatically increasing the cost of borrowing.
A senior Labour source said that despite the scaling back of the plan, the party was still committed to 100 per cent clean energy by 2030 and that its green ambitions would remain “highly ambitious” in government.
Two sources said the decision had been in the works for some time, with Sir Keir Starmer, Ms Reeves and shadow Climate Change Secretary, Ed Miliband, recognising the need to recalibrate the plans after Ms Truss’s premiership.
The senior source also claimed the partial U-turn had been “resolved internally” for some time.
Ms Reeves had been planning an intervention on the growth plan this week to coincide with Rishi Sunak’s visit to the United States, anticipating that there would be much discussion about President Joe Biden’s Inflation Reduction Act that the Prime Minister would come back with “not much at all”, according to another source.
But insiders acknowledged that increased scrutiny of Labour’s spending plans in the media, including an i analysis which suggested the party would have to increase the basic rate of income tax by 3p to pay for the changes it wants, was a factor in the timing.
“We’ve been challenged on it a bit and we are happy to answer the question,” the source said.
“It’s right to do it now when people are thinking about the answer to that question but we were also thinking of it around the US stuff.”
Some believe the looming deadline of the net zero mission launch with Sir Keir and Mr Miliband a week on Monday was also a driver as were recent statistics from the fiscal watchdog, the Office for Budget Responsibility.
The move has been criticised by environmental groups, with the Energy and Climate Intelligence Unit suggesting it would leave the UK “stuck in the mud” compared to the US in terms of attracting investment.
Greenpeace UK said any U-turn would be a “huge mistake” and accused Labour of “prevarication”.
But while there is said to be disgruntlement among the left, with former shadow chancellor John McDonnell urging the party not to “sabotage” its plan to appease critics, there has been little backlash internally.
One senior Labour figure told i: “I don’t see it as a partial U-turn, more a timely injection of sense and realism.”
Another insider said the pledge risked becoming a “time bomb threatening the whole plan” as the Tories could seize on the levels of borrowing envisaged to attack Labour in an election campaign.
“We announced it before the Tories f****d the economy so of course it needs reviewing and a delayed start sounds reasonable,” they said.
A Labour MP added: “It’s understandable with interest rates increasing and cost of borrowing increasing. I know it’s not what they wanted but I don’t see an alternative.”
Conservative Party chairman, Greg Hands, said the about-turn left Labour’s flagship economic policy “in tatters”.
