Labour's green investment pledge raises so many questions

Those of us who pay attention to this sort of stuff are probably getting a little bored hearing about Labour’s pledge to spend £28 billion a year on green investment. Will they? Won’t they? Will it depend on the fiscal inheritance? And if so, how?

Please don’t turn away now, though, because this “row” or “confusion”, if such it is, tells us rather a lot about the tenor of the coming election campaign, the debate about fiscal policy more generally and the relationship between the media and politicians.

First is the salience of a particular number: £28 billion. It is no longer the right number, but, because the policy was originally couched in those terms, it has stuck. Why isn’t it the right number? Because since Rachel Reeves first announced it, the present government has committed about £8 billion a year to investment in the green transition.

Perfectly sensibly, Labour policy — let’s assume it is the party’s policy — is to spend £20 billion in addition to that £8 billion, so we should be talking about a £20 billion commitment. It would be ludicrous to define a spending target as an amount above whatever the existing government plans. If Jeremy Hunt were to have an epiphany and announce an additional £20 billion of green investment in next month’s budget, that should not result in Reeves committing to outdo him by another £20 billion.

Second, the context for this additional investment spending is all-important. Remember, it is defined by comparison with the present government’s plans and while those plans involve more money for the green transition, they involve a substantial cut in investment spending overall.

Current plans are to freeze capital spending in cash terms for the next five years. That will take it down sharply as a fraction of national income. Even if Labour were to spend an extra £20 billion a year on top of today’s government plans, total government investment spending by the end of the next parliament would be no higher, as a fraction of national income, than it is this year. Given that all the party’s additional spending is for the green transition, that would still mean substantially less for other infrastructure, roads, hospitals, houses and the rest. While the present government has stepped up investment spending quite sharply over recent years, these planned cuts to capital spending, from parties that both say they want to focus on growth, surely should be subject to more scrutiny.

Nor, third, is there much discussion of how well the money will actually be spent. Last year there was a furore over an apparent backtracking from committing to spending an extra £28 billion in year one of a new parliament to an extra £28 billion a year by the end of the parliament. It may well be that textual analysis of the original statement will suggest that Labour’s policy was to increase by that amount right away, but it shouldn’t take more than a nanosecond’s thought to realise that any such commitment would be completely mad. Unless you want to tip vast sums of money down the drain, then you can’t possibly commit to that sort of an uplift straight away. A gradual increase to that level makes far more sense.

If Labour should have got grief over this, it should have been over the original impression that spending would zip up immediately, not over the “clarification”. The quality of the spending, the details of what it is intended to buy, really matter.

Fourth, there is the way in which all of this is measured against the “fiscal headroom”. Is £28 billion (or £20 billion) “affordable”, given the fiscal rules? In the very specific sense that if you took the current government’s (basically silly) rule that debt should be forecast to be falling in the fifth year of the forecast period, then announcing £20 billion of additional spending for that fifth year probably isn’t “affordable”.

But there are a number of rather important caveats to that statement, not least that I don’t think Reeves has yet signed up to that very specific fiscal rule. More sensible ones are available. Aiming at an extra £20 billion of spending five years hence is hardly vast in the context of a budget of well over £1 trillion. By itself, it won’t be the difference between fiscal sustainability and fiscal chaos. Certainly, to have an ambition or intention to get there, to plan to get there, is reasonable, all else being equal.

That takes us, though, to the fifth and most important point. All else is not equal. What is most remarkable about this pledge is not its scale, nor its affordability; it’s the fact that it is the only substantial spending pledge that Labour has made. It is quite the statement of priority. It has pledged next to nothing over and above the present government’s plans for anything else — health, welfare, social care, local government, education, anything. The real question we should be posing is: is this really your No 1 priority? Will investment spending on the green transition really trump everything else?

As a former member of the climate change committee, I am not casting doubt on the importance of such investment, but if that commitment really is the No 1 priority, then it will constrain action elsewhere. Spending an additional £20 billion here, without significant tax increases, will make offsetting planned cuts in other areas of public spending all but impossible.

There are lessons here both for how parties’ state their policies and for they are interrogated about them. Neither the Labour Party nor those trying to hold it to account have covered themselves in glory on this one. Let’s see this as a trial run for the election year ahead, and try to do better next time.

This article was first published in The Times, and is reproduced here with kind permission.