In 2021 the shadow chancellor, Rachel Reeves, made the relatively radical commitment to spend £28 billion per year on green capital investments if Labour entered into office.
Last week, she walked this commitment back, emphasising that the fiscal environment had changed, and that instead an incoming Labour government would build up towards the £28bn figure over the parliament.
Labour’s pledge
So what was this commitment, what does it mean now, and how might it impact the UK’s wind industry?
Firstly, it’s important to be clear that the £28 billion commitment was itself unclear. Investing that volume of capital in ‘tackling the climate crisis’ doesn’t actually indicate what it might be spent on: the original announcement featured hydrogen, electric vehicle infrastructure, household upgrades, offshore wind manufacturing and upgrades to public spaces.
Missing was how the money would be allocated between these potential areas of spending, and how any individual investment would work.
However, allied to this was an announcement of a state-owned energy company – Great British Energy (GBE) – and it seems reasonable that at least some of the cash would flow through that vehicle. Subsequent public statements by Ed Miliband, the shadow secretary for climate change and net zero, indicated that GBE would have a role in developing energy projects, although the shape of that remains uncertain.
Investor confidence
While more detail would be helpful – especially for companies wanting to invest in the UK and wanting to understand what capital might be available in the future – it’s very challenging for an opposition party that can’t access the civil service machine to fully itemise its planned investments.
This points to one of the good reasons why the commitment may have been walked back: in practice, it would have been very difficult to spend £28bn in the first year of an incoming Labour government.
This may seem counterintuitive – surely it’s easy to get money out of the door – but the British state is not adept at moving quickly. In order to spend all of that money, the civil service will need to design a framework to allocate it, consult on that framework, and if necessary, legislation may need to be passed to give it the powers to make relevant investments.
Add to this setting up a wholly new state-owned enterprise in the form of GBE, it’s difficult to see how – even in advance of the walk back on the policy – how much of the cash could’ve been spent in at least the first year of a new administration.
The challenging fiscal climate prompted by both the pandemic and Russia’s invasion of Ukraine gives an excellent out here. Labour now have time to figure out how to actually deliver this cash.
IRA counter-offer?
There’s a strong argument that, rather than seeking to compete with existing offshore wind developers, GBE should look to grow its expertise through joint ventures in which its role is to provide cheap capital – potentially conditional on commitments to source components form the UK.
This would help to lower capital costs while giving Government a much stronger role in offshore wind industrial strategy. Given the success of the USA’s IRA programme in attracting investment, this may be the beginnings of a UK counteroffer.
Adam Bell is head of policy at Stonehaven and former head of energy strategy at the UK Department of Business, Energy and Industrial Strategy (BEIS)
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