Just over a week ago Rachel Reeves, the shadow chancellor, was accused of watering down Labour’s commitment to spending £28bn a year on green investment. Her comment that it would take Labour time to “ramp up” to spending the full £28bn were slightly overblown by the media. The UK does desperately need to provide the investment to slash our dangerous carbon emissions, but with state capacity hollowed out after thirteen years of austerity and outsourcing to private consultants, alongside shortages in key green skills and major obstacles in the current planning rules, we always knew that actual “shovels in the ground” spending would take time to scale up.
It was reassuring today to see Keir Starmer reassert his commitment to kicking the UK’s addiction to fossil fuels. But his ambitions are facing a snag: Labour’s insistence on arbitrary and self-imposed borrowing rules would limit the amount it could spend. If Labour gets into government, it mustn’t let these outdated dogmas take precedence over investing in our future.
Labour says that it will only borrow for public investments if it means that debt will fall as a share of national income after five years. But what most people don’t realise is that these rules aren’t based on any economic law – they are arbitrary targets that prioritise an image of “fiscal responsibility” over a commitment to spending what our economy desperately needs. UK borrowing rules have been repeatedly changed by chancellors whenever they found them inconvenient, making them no guarantee of credible or stable policies.
More importantly, borrowing rules in the guise adopted both by the Conservatives and Labour assume that the risk facing chancellors is borrowing too much. They totally disregard the harms of not borrowing and investing enough in essential infrastructure such as renewable energy, home insulation, and public services such as the NHS. In fact, these investments will boost the economy, making long-term debt more affordable.
We’re already paying the price for underinvestment. The UK has been hit particularly hard by sky-high fossil fuel energy costs because we wasted a decade when we could have been insulating our draughty homes and coming off fossil fuels – most infamously through David Cameron’s decision to scrap the “green crap”. This makes us less economically resilient and more exposed to future price shocks, contributing to the UK’s stubbornly high inflation.
To address our long-standing weak investment – both public and private – which has made us all poorer, we need a government that invests in good jobs in green industries, to raise wages today and protect our future. The shadow chancellor claims that her economic approach takes after President Biden’s massive US spending packages, which she calls “securonomics”. That involves a focus on rebuilding economic security through good jobs, decent pay and tackling the cost of living. Biden’s approach has already sparked a green investment and jobs boom. But Reeves will fail to do the same if Labour remains shackled to its borrowing restrictions.
If Labour is serious about “securonomics” it must actually commit to the investments that will deliver it. UK businesses yearn for a credible government that will offer stability and the productive resources they need – a well-skilled workforce and high-quality infrastructure – to give them confidence to invest. Scaling down the green prosperity plan because of an obsession with arbitrary borrowing rules will not ensure energy security, create good jobs or safeguard our future from climate breakdown. It will only perpetuate our current cycle of decline and insecurity.
The disastrous Truss mini-Budget spooked everyone, but the lessons from the period have been mis-learned. Bond yields did not spike because of the amount of government debt, but because of the incompetency premium attached to that short-lived government. There’s a difference between borrowing for productive investments and Liz Truss’s determination to borrow for a tax gift to the richest.
We are facing multiple, overlapping crises: 40 per cent of us won’t be able to afford the basics by the next election and the climate crisis is already causing deadly wildfires and heatwaves. The responsible solution is to borrow to invest in well-paid jobs in the industries of the future, rather than sacrificing our future on the altar of outdated borrowing rules.