February 27, 2024

The economic picture is “very different” from when Labour set out its green investment plan, Rachel Reeves has said, as she refused to repeat her party’s £28bn spending commitment.

The shadow chancellor said her party’s green prosperity plan was important but had to be approached in a “way where the numbers add up”.

The “fiscal inheritance” was very different from when the plan was announced, she told LBC, saying the UK’s economic outlook was “dire” after the former prime minister Liz Truss’s mini-budget in 2022.

Announced in 2021, Labour had promised to invest £28bn a year until 2030 in green projects if it came to power. It has watered down the pledge in recent months and has been forced to deny claims this month that it had scrapped the proposal. Last week it was revealed that Labour would hold a series of crunch meetings on the future of the policy.

On Sunday, the shadow business secretary, Jonathan Reynolds, described it as an “ambition”. Keir Starmer, the Labour leader, has previously hinted he could scale down the investment given the financial picture he would inherit if he became prime minister.

Reeves offered similar sentiments during an LBC phone-in on Monday evening. She said: “The economic inheritance for the next government is going to be dire.” She accused Rishi Sunak’s Conservatives of enacting a scorched-earth policy to leave the worst possible inheritance for an incoming government in terms of the economy.

“If you look at the things that have happened since that [2021] announcement, the most key moment was Liz Truss’s mini-budget which put pensions in peril, sent mortgage rates soaring but also pushed up the costs for government of borrowing.

“The government is spending something like £120bn just serving debt interests. So the truth is the fiscal inheritance of an incoming Labour government is going to be very different from when I first set out Labour’s green prosperity plan.

“I don’t get to choose the inheritance – I have to live with whatever is bequeathed, if we have the opportunity to form the next Labour government. And all of our plans will be within those rules.”

She said there could be further economic changes in the budget in March and potentially a second fiscal event before the next general election, which is expected to take place in autumn.

Laura Trott, the Conservative chief secretary to the Treasury, suggested Reeves’s “scorched earth” comment hinted at tax rises under a future Labour administration.

A group of leading economists at the London School of Economics published research last week saying the UK should invest £26bn a year in a low-carbon economy to revive prosperity. It warned that planning tax giveaways would only lead to further stagnation.

The researchers said investment in energy infrastructure, transport, innovation in AI and other new technologies, and the natural environment would boost the UK’s economy rapidly, with public investment at that level generating double from the private sector. It would quickly pay off in higher productivity, efficiency savings, economic growth and carbon reductions.

The paper was written by Lord Stern, a former chief economist of the World Bank, and colleagues from LSE.

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