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I cheered Labour’s £28bn climate pledge…but it’s right to move on

We need a mixture of state and private investment to decarbonise Britain fast

Paul Mason
10 min readFeb 3, 2024


I cheered when Rachel Reeves pledged to spend £28bn a year on clean energy, at Labour’s 2021 annual conference. The eight-year commitment was designed as an iconic headline offer to young voters and potential Green voters.

But I will also cheer if Labour manages to extricate itself from a pointless row over the figure, and recast its Green Prosperity Plan in line with its overall Securonomics agenda.

Yesterday, for the first time a Labour frontbencher confirmed the figure is set to go, prompting accusations from the left that the party has gone soft on climate, and concerns from some traditionally on the right of the party that this is yet another example of folding in the face of political pressure.

But I think it’s wise to uncouple Labour’s radical action plan for green energy from a single fiscal pledge, which was made in completely different conditions and before the party’s overall economic policy had matured.

Cost of inaction

It’s clear we’re going to need massive investment in wind, solar and nuclear, plus a major overhaul of the energy grid, transport, infrastructure and home energy system to meet net zero.

That money can only come from two sources: the state, via borrowing to invest, and from the private sector.

The task for any Labour chancellor who is serious about meeting the party’s 2030 clean electricity pledge — which is critical and must remain — is to borrow and spend in a way that mobilises the optimum amount of investment from the private sector, to create long-term regulatory certainty, and remove obstacles to growth.

That means facing the fiscal reality in front of us, not the reality of 2021. And here it is, in a single chart (Source FT). When Rachel Reeves made her speech, gilt yields stood at 1%, today they’re close to 4%.

Today the cost of borrowing is four times higher — and thanks to the so-called “moron premium” created by the Truss fiasco, establishing fiscal credibility is going to be crucial for Reeves as a new chancellor, no matter how warmly she is received at Labour’s current round of business lunches.

To make the case for borrowing to invest in decarbonisation, we have to establish a consensus around the fiscal cost of not acting.

The argument is spelled out clearly in this chart from Labour’s Green Prosperity Plan, based on 2021 OBR figures that have not been since updated.

The graph shows that if we delay decarbonisation, then in the early 2030s the expected debt to GDP ratio will be 15 points higher than if we’d acted early, and 20 points higher by the mid-2040s — because of a mixture of economic disruption, climate shocks and lower growth. In today’s money that’s £450bn of extra debt.

By contrast, if you invest now, and boost productivity, the OBR’s 2021 chart (below) shows the overall debt would be much lower. That’s an argument that can work with Tory voters because it’s based on government projections.

So the case for borrowing to invest now is strong. The government’s own figures show that if we borrow to invest now, our debts will be lower in the future.

But why do we have to commit to a single borrowing/investment figure today, when we know nothing about future budget conditions, growth, inflation or the global security situation?

The full £28bn?

Let’s first clear up some misunderstandings about the pledge. First, as the IFS points out, the £28bn figure is now more like £20bn, because the government is already investing around £8bn a year compared to the 2021 baseline.

Second, while some of the £28bn is allocated — for example £3bn for the transition to green steel — a lot of it is not actually costed against the proposals of the Green Prosperity Plan. That’s always been a hostage to fortune and would not survive the writing of the “Grey Book” — the detailed costing of Labour’s next manifesto, which is presumably under way.

Third, Labour now says it will only hit £28bn in the second half of the Parliament — which means the total pledge is already way smaller than the £224bn envisaged originally. Fourth, if adjusted for inflation the original £28bn would now be £34bn. But it hasn’t been.

As you move from issuing pledges in 2021 to a concrete plan for government in 2024, you have to get specific — not just about the top line figure but about the detailed costing of the GPP’s targets, and how much private capital you expect to mobilise alongside state spending.

But you can only do so on the basis of (a) current government tax and spending plans and (b) the projected cost of borrowing and critically (c ) an updated projection of the costs of not acting, or acting late.

Reeves will not get access to (a) or (b) until 6 March 2024 — the government’s final pre-election Budget, alongside the OBR’s projections for debt interest costs and inflation. But unfortunately we can guess what (c ) is going to look like: ghastly, and here’s why.

In July 2023 the OBR issued its latest Fiscal Risks and Sustainability Report. It does not contain an updated version of the bar chart above, but it does imply that:

  • The Treasury will lose much more from the end of fuel duties than it can claw back from a carbon tax (based on IMF predictions)
  • If there are just three more oil price shocks between now and 2050 that would add a further £337bn in net debt by 2050. (p96 — see chart below)
  • The cost of public spending needed to decarbonise home energy could raise debt by five times the amount predicted in 2021. (Box 3.3 p87–89)

Because the Tories have failed to publish their projection of the split between public and private investment in the transition to net zero, the OBR is effectively still flying blind. But it’s signalling that the debt dynamics of decarbonisation have been made permanently more challenging by the outbreak of war in Ukraine.

What three more gas price shocks do to projected UK debt: Source OBR 2023

Beyond a headline figure

I still think Labour should make its Green Prosperity Plan the centrepiece of its election offer. But here are the reasons I think scrapping the headline figure makes sense.

First, it was made in completely different fiscal conditions. Not only is the cost of borrowing four times higher, but inflation is higher, growth is stagnant and the fiscal dynamics of decarbonisation look much worse. On top of that there are new demands on government spending, resulting from the collapse of local government finance, and the urgent need to rearm in the face of Russian aggression (which both the USA and EU are financing through bond issuance).

Second, it is not obvious that there is capacity in the economy to absorb the sudden injection of precisely £28bn a year in 2027. If the Tory-run Treasury produces a hatchet job on Reeves’ pledge (the stunt traditionally pulled by the Tories at this point in the electoral cycle) I expect it will say exactly this.

But if you spend wisely up front, and build the capacity — in terms of skills, supply chains, raw materials and infrastructure, while making the necessary changes to regulation — it makes sense to backload the investment, and be flexible about how much the original top line figure turns out to be needed.

Third, the Tory government is set to squander around £14bn in a tax giveaway at the coming Budget, leaving the incoming Labour government with little further margin for borrowing without breaking its own self-imposed fiscal rule. You can object to the concept of fiscal rules, or advocate a different one, but since Labour has one, it has to stick to it.

But the most persuasive reason is this: if you get the regulation part of the energy transition right, the private sector will invest.

There are billions sitting in investment funds just waiting to pile in to UK energy and grid infrastructure — once there is regulatory certainty and political stability.

That means ripping up archaic planning rules and changing the way pensions funds are regulated, as Reeves has pledged — each of which sounds boring compared to spending £28bn, but is actually more critical to the outcome.

The private sector won’t provide all the money — as evidenced by Tata’s meagre response to the crisis at Port Talbot — but it will provide a substantial part of it, if it becomes convinced Labour is serious about delivering planning reform and wider regulatory stability.

It will then be up to the Labour government to use borrowing and spending to do the hard stuff — like delivering climate justice to communities affected by the transition, saving steel, speeding up home insulation and boiler replacement etc.

The £28bn pledge was made before Labour seriously committed to what it now calls “Securonomics” — a state-led project to revitalise the private sector through detailed industrial strategy and regulation. We now have four years of evidence of what works, from the Biden administration, and can predict more clearly the mixture of supply side reform and sheer fiscal firepower Labour is going to need. [For a primer on the options available, see JW Mason’s article here].

What frustrates me about the £28bn row is that it reduces a complex problem — of designing and executing a radical, green industrial strategy through state direction and regulation, in an era of volatile gas prices and uncertain debt dynamics — to a single figure, and has triggered a needless argument about “sticking to pledges”.

Put crudely, the more you achieve through regulatory certainty, derisking and industrial strategy, the less money you need to borrow and spend…

… but nobody really knows how high the debt is going to be in 2050, only that it now looks worse than it did in 2021.

We’ve got to get away from “borrow and spend good, regulatory stability boring (or bad)”. Because the essence of the Securonomics agenda is to do both, and for the state to co-ordinate them via new institutions like Labour’s promised Industrial Strategy Council.

Talk in real figures

So here’s what I would do. On 6 March the Tories will issue their final pre-election Budget. If the briefing is right, they will take the £14bn of reported “fiscal headroom” and divide it between tax cuts and perhaps a bit more spending on defence — missing their last opportunity to spell out an investment plan for green growth.

At that point, Labour will finally see the fiscal battlefield on which the election will be fought.

Then it should be possible to tell the electorate a clear cost/benefit story about borrowing to invest today, in order to boost growth and reduce debt tomorrow.

The best place to do that is in the Labour manifesto.

The message should be: if we can borrow to invest in green energy assets and skills now, in sustainable amounts and at sustainable interest rates, we will save that sum several times over during by 2050.

Likewise, if Labour can demonstrate effectiveness in delivering regulatory stability, that in itself should reduce the cost of borrowing — the reverse of the Truss “moron effect” — both for the private sector and the government.

The Securonomics agenda is one of the most exciting things to emerge out of Starmerism. It is on that agenda that Labour needs to go to the country, with detailed plans for how to reach its mission goals — like the highest GDP growth in the G7 — and a sober understanding of the obstacles.

To my colleagues on the left I would say: there are just as many opportunities for radicalism arising out of this new agenda as there were from the old one, embodied in the 2017 manifesto.

Because, just as you can’t borrow your way around a problem like having too few nuclear-qualified construction engineers, you can’t regulate your way around it either. You have to use state direction.

And my hunch is that Labour’s entire Five Missions approach, brilliant though it is, will need more state direction and more state ownership than most people imagine (and in addition trigger much higher growth, as JW Mason suggests here).

So Labour should update its Green Prosperity Plan and rigorously cost its commitments; it should model the plan’s execution over time, identifying the both the fiscal risks and the potential fiscal benefits of regulatory certainty— which the current OBR scenarios do not. And it should go to the country on the promise to combine borrowing and spending on green energy with a planning revolution.

Labour’s wider challenge is to convince both the OBR and the public that borrowing to invest can permanently raise the output potential of the economy and revive growth. But if we take the Tory arguments head on we can defeat them.

Some in Labour want to stick with the £28bn because scrapping it will look bad. All I want is for Labour to go into the election with a watertight proposal to transform Britain.

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Paul Mason

Journalist, writer and film-maker. Author of How To Stop Fascism.