Imagine this scenario. The Chancellor of the Exchequer is at the desk on March 6, Budget Day, telling the Commons that he will cut public investment by £140bn (that’s about four HS2s) and spend £23.7bn instead. million pounds in five years.
That is precisely what the Labor Party has done by abandoning its Green Prosperity Plan, one of the key pillars of Rachel Reeves’ ‘Securonomics’.
Just to put the revised green investment spending into perspective, it is less than the £8 billion a year the Conservatives have already dedicated to their own ‘Powering up Britain’ energy security plan.
And, incidentally, Labour’s new investment would be funded by a windfall tax of around £10bn on North Sea energy producers.
This equates to far less than the UK’s two oil majors, BP and Shell, have committed to spending on zero-carbon projects in the coming years. There is a risk that, by jeopardizing North Sea oil investment and the country’s medium-term energy security, the windfall tax will lead to fewer rather than more climate change projects.
It’s no laughing matter: Keir Starmer and Rachel Reeves have shown that nothing they say can be trusted if the most important policy on their horizon is so easily dismissed.
Keir Starmer justifies the green change of heart by arguing that the Conservatives “sunk the economy.” But that’s not strictly true either. Yes, Truss’s tantrum was a bad moment. The biggest domestic impact came in mortgage rates. They were going up anyway as the Bank of England sought to defeat inflation.
In fact, the housing market – as measured by mortgage approvals – and two of the biggest lenders, Halifax and Nationwide, are already improving.
The true narrative is that if anything affected economic performance it was Covid-19 and Putin’s war against Ukraine. Amid subnormal growth among the rich European members of the G7, Britain is faring better than its biggest competitor, Germany.
Rachel Reeves has good reason to be cautious. Although Labor is well ahead in the polls, the £28bn was an open target for the Conservatives, who recognized that whatever Labor said in public could not be achieved without tax rises.
There are memories of 1997, when even though the public finances were in a much stronger state than today, Gordon Brown, Ed Balls and the accountants Arthur Andersen were drawing up secret tax collection plans to finance favored projects.
The energy reversal will have consequences for the Labor Party. The immediate blow is the “turn of direction” narrative. The usually friendly Guardian felt the need to appear on its cover with the headline “Fury as Starmer makes 180-degree turn”.
An opinion page article by Starmer and Reeves, which spoke of a “long-term plan to invest in Britain’s future”, seemed ludicrous given that Labour’s most audacious project had been consigned to the landfill. There is a bigger problem. Reeves and Starmer have done everything they can to win over the business community.
Powerful CEOs have been fighting for access. Some observers have seen this as evidence that Boris Johnson, with his sloppy ‘bullshit business’, lost the trade lobby. This underestimates how cowardly senior management can be when faced with a change in government, and says little about what he really thinks.
Most CEOs value stability and predictability in order to make the much-needed investment to boost productivity.
Reeves and Starmer may believe they are demonstrating fiscal responsibility. What they have really shown is that nothing they say can be trusted if the most important policy they have on the horizon is so easily dismissed.
Many bosses I speak to accept the likelihood of a Labor victory, but also praise some of the things the Conservatives are doing.
Jeremy Hunt’s extension of full business spending for plant and equipment has infrastructure investors such as BT broadband provider Openreach dancing in the aisles.
And what does Labor offer the company? A forceful attack on North Sea oil energy projects, the end of tax privileges for non-domiciled people that is already pushing them and their potential investment funds abroad.
Without an energy revolution, the opposition’s growth plan amounts to tearing down planning laws to make infrastructure projects easier and the nation get the homes it deserves. No one can disagree with the need for it. The danger is that this much-needed reform, due to objections from local governments, could become the next U-turn. Certainty has been abandoned.