‘Now is not the time for Labour to row back on its green prosperity plan’

The big news that year had been that Oasis might get back together for Glastonbury. In the end, whether they would have or not, Covid meant the festival was cancelled. But, for me, the big headliner of 2021 was not who might have been wowing the crowds on the Pyramid stage. The real icon was at Brighton, strutting her alternative green energy stuff at Labour conference.

To hear a Labour Shadow Chancellor embrace the future like that took me back to the heady days of Harold Wilson’s greatest hit: “The white heat of technology.” And yes, I know they say that if you remember the 60s, you weren’t really there, but I was, and I do. Anyway, in Brighton there she stood, all in red, embracing her inner socialist, and promising £28bn a year in every year of a Labour government for a green prosperity plan that she proudly declared was the only way to grow the economy sustainably.

It seemed like The Starmers had really found a vibrant new sound, fiscal prudence coupled with environmental sustainability – a synthesis of the old Brown base-beat peppered with some Millibandista high notes. So where did it all go wrong?

Labour’s spending plans are a world away from the chaos of Truss

Red Rachel belted out some great lines in those early songs: “Value for money means knowing when and where not to spend. But it also means knowing when and where to invest – to prevent far greater costs further down the line.” It was that twist that really wowed the eco-fans. At last, somebody had understood the angst of their generation, that meeting the twin climate and ecological crises was an existential thing. It wasn’t about profligate spending. It was a sound investment to build a sustainable future and to save far greater costs in the future.

So where did it all go wrong? Did the Truss/Kwarteng mini-Budget debacle really give Reeves a nightmare vision of lost confidence in the bond market and a swingeing rise in gilt prices? Did that really force her into that humiliating retreat on Radio 4? 

Let’s put it this way… if it did then she was smoking something stronger than anything being smoked at Glastonbury this week. Truss had decided she was going to borrow to fund consumption – principally tax breaks for some of the richest people in the UK. The bond markets took the not unreasonable view that relying on the rabid greed of the wealthiest capitalists as a means of growing the economy was more Bat out of Hell, than Bridge Over Troubled Water. But Labour’s £28bn was never about consumption. It was about investment.

Borrowing to invest now would be cheap by historic standards

These past couple of weeks – as even Ed Miliband has come out to support the RRRV (Rachel Reeves revised version) – I have clung on as the MP with more faith in the original Reeves plan than Rachel herself. For me, the clue is in the name ‘green prosperity plan’. If you really believe that this is the only way to sustainably grow our economy, then it cannot make any sense to say that you will wait until the economy grows before you start the plan.

So let’s examine the reason given for only delivering the plan in the second half of the next parliament – purportedly because of Labour’s determination to keep to its fiscal rules. These are:

1. Get debt down as a proportion of GDP
2. Cover day-to-day spending through tax receipts
3. Borrow to invest 
4. Include public assets when conducting fiscal policy
5. Empower the Office for Budget Responsibility to define a crisis 

I agree with those rules. What they mean is that any borrowing should be for investments where the original investment cost (and the cost of servicing the debt incurred) is exceeded by the rise in revenue that the investment generates. In other words, the investment pays for itself and a little bit more. The economy has grown and the debt, though larger than it was, is smaller as a percentage of GDP. 

The good news is that borrowing, although more expensive than it has been in the past few years, is actually lower than it was when Labour came into government in 1997 and is now back to the level it was 15 years ago. So borrowing now to invest in clean green infrastructure and jobs would actually be cheap by historic standards. An incoming labour government must not squander that opportunity.

Investment is essential to growth – and to cutting emissions

The Conservative austerity project has given us 13 years of low and stagnant growth because they failed to invest. Figures from the World Bank put the ratio of investment to return at one to four for green investments. The data is clear, if you want to grow the economy, you need to invest in it. With his Inflation Reduction Act, President Biden shows he has understood that. I thought Rachel had too. 

In the UK, we have already proven that it is possible to grow your economy and cut emissions. Since 1990, our economy has grown by 78% and our emissions declined by 44%. The pity is that the Conservatives are failing to double down on this success and refusing to invest at the required scale. I want Labour to deliver that ambitious scale of investment here in the UK. 

The interesting thing is the capital markets are now searching out green investments. We have already seen some companies divert their investment to the USA because of the incentives that Biden is offering. Sending signals to the market that we have gone shaky on the £28bn is not the way to attract them back. 

Failing to act on climate change will cost our economy far more

Look at the report that came out from the International High Level Expert Group on Climate Finance only a few months ago. They began by saying: “Current action is too weak and too slow; to delay is dangerous.”

These are not tree-hugging hippies. These are world-class economists who are worried that the global financial system is facing an existential threat from stranded assets and uninsurable capital. The truth is that failing to act on climate change will cost our economies far more than acting on it.

We signed up to all this at COP26 in Glasgow with the Financial Alliance for Net Zero. But the UK is not yet delivering the scale of investment that we promised. Business investment depends critically on confidence in government. If they feel that government is committed and has skin in the game, they will mobilise huge investment resources with confidence. If they think the regulatory regime may change or government is an unreliable partner, they won’t. We saw that after 2016 with the collapse of the domestic solar industry. Labour must not repeat the Tories mistakes.

In the States, the Inflation Reduction Act did not rely solely on borrowing. Biden actually raised taxes and abolished tax breaks for the wealthy as part of the mechanism. And that is exactly what Labour could do here in the UK. The second fiscal rule says we must cover day-to-day spending through tax receipts. I agree. That is the fiscally responsible thing to do. But let’s not do what the Conservatives have done and levy those tax receipts on the backs of the poorest in our community. Labour must levy the revenue required for that day-to-day spending without crashing the economy and in a way that is fair and socially just. 

We can raise the revenue needed while adhering to our fiscal rules

Most politicians would be surprised, and most consumers incensed, to know that, prior to the temporary windfall levy, the UK had the lowest tax take from its oil and gas producers in the entire world. Here we are importing around 70% of our net gas imports from Norway. But they take 78% of their producers’ profits in tax revenues – the UK takes 40% in normal times.

If Labour moved the tax take on oil and gas producers to the level of Norway, that would raise an additional £14bn a year. Instantly, you have half of the £28bn you are looking for.

In the last Budget, Jeremy Hunt raised £25bn of taxes by stealth – freezing income tax thresholds and National Insurance. That hit ordinary families the most because their incomes are from employment. If Labour levied National Insurance on non-employment income, we could raise another £30bn. That would mean landlords and others who live off their investment income paying National Insurance just like the rest of us. 

So we can raise the revenue we need for day-to-day spending and only borrow to invest and grow the economy. We do not need to break the fiscal rules to have a green prosperity plan. Renewables really are cheaper and the cheapest energy of all is the energy we do not use.

A recent report by the Energy and Climate Intelligence Unit modelled the cost of the UK’s net imports of gas through to 2035 against different policy scenarios. It showed current policies against stated government targets and finally an ambitious programme of insulation, energy efficiency and heat pumps. Current Conservative policies would see the UK’s annual gas bill soar to £35bn through to 2035. By contrast, an ambitious energy security scenario like Labour’s green prosperity plan would cut gas demand, improve energy security and reduce the annual gas bill to pre-crisis levels of just £10bn, saving £25bn a year.

Now is the time for a bold vision

Now is not the time for retrenchment. Now is the time to create the new jobs of the future. Tidal is reliable. Wave power is constant. In fact, the sun doesn’t ever stop shining, and interconnectors mean we can transport solar energy from where it is shining to where it is needed. That is what the Global Green Grid Project that was announced at COP26 in Glasgow was all about.

We need to recapture that bold vision for a better future that strutted across the Brighton stage in 2021 – “Cleaner, Greener, Fairer, Cheaper!” I can hear the crowds chanting it now.