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Rachel Reeves will next week announce new curbs on Labour’s plan to invest in new low-carbon energy production by pledging that every £1 invested by the party’s proposed “national wealth fund” will have to attract at least £3 of private sector investment.
The shadow chancellor’s pledge is designed to show that, if it won the general election expected next year, Labour would not pour billions of pounds of state money into green schemes unless they are likely to make a commercial return for taxpayers, according to her aides.
Reeves will make the promise in her speech on Monday to her party’s annual conference in Liverpool, a four-day event that begins on Sunday.
Under the party’s current plans, a Labour government would borrow up to £28bn a year to invest in a “green prosperity plan” that would exceed US president Joe Biden’s similar Inflation Reduction Act on a gross domestic product per capita basis.
The money will be spread over a variety of schemes, ranging from the national wealth fund to a domestic insulation programme and a Great British Energy corporation, which would invest in low-carbon energy schemes.
The national wealth fund is designed to co-invest in projects that are seen as necessary to the energy transition and Britain’s industrial future, but which fall outside of energy production.
Reeves wants it to take equity stakes in projects including eight new “gigafactories” for electric vehicle batteries, six clean steel plants and nine “renewable-ready” ports.
On Monday, she will say that imposing the 3:1 ratio on the fund should shoehorn £24bn of private sector investment into Britain.
Reeves will say that a Labour government would help business through the low-carbon transition so that companies are not left to do the “heavy lifting”. But she will add: “Financial responsibility means knowing when not to spend and getting the bang for your buck.”
The comments in Reeves’ speech reflect nerves among some Labour MPs about the vast scale of the green prosperity plan, which was conceived in an era when interest rates were close to zero. At that time, the policy attracted little notice.
But this summer, in the wake of sharply rising borrowing costs, some City figures raised questions about adding £28bn of debt every year to the government’s balance sheet.
As a result, in June, Reeves said the £28bn figure would not be reached until halfway through the next five-year parliament, and that the policy would be reined in further if it threatened to breach her fiscal rules. Under these rules, which are aimed at boosting voter confidence in the party’s management of the economy, a Labour government is obliged to cut public debt as a share of GDP over five years.
However, Labour is sticking to the overall green prosperity plan, arguing that without it Britain would be left behind by the more interventionist approaches of China, the US and the EU towards the low-carbon transition.
UK prime minister Rishi Sunak last month delayed a series of targets to tackle climate change, including pushing back the ban on the sale of new petrol and diesel cars, to avoid imposing what he called “unacceptable costs” on “hard-pressed British families”. But some business leaders complained that the constantly shifting regulatory climate was undermining their ability to invest with confidence.
Reeves will on Monday argue that the national wealth fund will help boost Britain’s business investment, which has been languishing at the bottom of the G7.
She is also expected to set out how a Labour government would reform the planning system to ensure the faster delivery of crucial infrastructure projects.
Labour donor Dale Vince, the founder of green energy group Ecotricity, said on Friday he would stop funding direct-action climate groups such as Just Stop Oil.
Instead, Vince said he would channel money towards getting the vote out for Labour at the next election. The entrepreneur has already given £1.5mn to the party in recent years.
