Labour scales back commitment to £28bn green plan

Shadow chancellor Rachel Reeves has scaled back the Labour party’s commitment to an annual £28bn of borrowing for a “green prosperity plan”, announcing that the figure would not be reached in the first two and a half years of a Labour government.

She said that while the party was still committed to the scheme it would only gradually “ramp up” borrowing to an annual £28bn and that the target would be achieved in the “second half of the first parliament” if Labour wins the next general election.

The policy is by far the main UK opposition party’s biggest single spending commitment and was first announced in 2021 when interest rates were close to zero — they have since risen to 4.5 per cent.

Labour would borrow in the government bond market to accelerate the shift towards the UK’s 2050 net zero target by backing projects including renewable energy schemes, nuclear power and home insulation.

The Financial Times this week reported growing nerves in the gilt market about the prospects of the extra borrowing by a Labour government. Mike Riddell, a global bond fund manager at Allianz Global Investors, said an increase in issuance of gilts could push up yields. “Any additional unexpected borrowing risks another gilt meltdown.”

Reeves told the BBC on Friday: “No plan can be built that’s not on a rock of economic and fiscal responsibility . . . I will never play fast and loose with the public finances and put people’s mortgages or their pensions in jeopardy.”

Reeves said Labour was still committed to borrowing £28bn a year but not immediately.

“We haven’t had the final set of numbers from the government,” she said. “I’m not going to give you a number when I don’t know how much more damage the Tory government is going to do.”

The FT reported a week ago that some senior Labour figures were pushing for a rebrand of the “green prosperity plan” to put more focus on job opportunities and less on climate change.

Sir Keir Starmer, Labour leader, is coming under scrutiny over his policy platform ahead of a general election expected next year as opinion polls give his party a commanding lead over Britain’s ruling Conservatives.

But some senior Labour MPs are concerned that a Labour government is prepared to commit such a large amount of public money to the low-carbon transition and not to other political priorities such as health and education.

Reeves has argued that the plan to invest in projects such as nuclear, wind and carbon capture has always been contingent on the borrowing complying with Labour’s fiscal rule that debt must be falling as a share of national income after five years.

On Friday the shadow chancellor told the Radio 4 Today programme that interest rates had gone up 12 times because “the Tories have crashed our economy”, insisting that Labour’s fiscal rules were non-negotiable.

“I did not foresee what the Tories would do to the economy, maybe that was foolish of me,” she said.

Labour figures have privately briefed in recent days that the £28bn target would not be hit immediately and that — if the Tories embark on more spending on green projects before the election — that spending would be deducted from the Labour plan.