Labour postpones £28bn green plan as it seeks to be trusted on public finances

Labour has scaled back plans to borrow £28bn a year to invest in green jobs and industry as the party’s leadership looks to review its spending in an attempt to prove its fiscal credibility.

The shadow chancellor, Rachel Reeves, delayed plans for a green prosperity fund to start in the first year of a Labour government, saying it would “ramp up” by the middle of a first parliament.

She said the decision had to be taken as a result of the poor economic backdrop and rising interest rates, after Liz Truss’s short premiership crashed the markets last autumn.

The Guardian understands Labour has also been looking closely at how to keep other areas of major spending within its fiscal rules. Insiders said the party had been looking to “make sacrifices” in areas it had already flagged as important to demonstrate its focus on economic credibility.

The decision on the £28bn is another sign of the spending discipline being enforced by Reeves, as the Conservatives increase their attacks on Labour before the general election, which is likely to come next year.

Reeves, who announced the delay to the prosperity fund on BBC Radio 4’s Today programme, said Labour would now build up to the annual £28bn plan by halfway through a first parliament.

The party had promised to spend £28bn a year on green investment until 2030 from the first year after coming to power.

However, Reeves said she could not have predicted the market crash caused by the former prime minister Liz Truss’s plans for unfunded borrowing for tax cuts last autumn, which created the difficult economic conditions including higher interests rates affecting the cost of debt repayment.

She said the priority was sticking to Labour’s fiscal rule, that debt must be falling as a share of national income after five years.

“No plan can be built that is not a rock of economic and fiscal responsibility … I will never play fast and loose with the public finances,” Reeves said on Friday.

She said her fiscal rules would be non-negotiable, so Labour would move to the £28bn green investment gradually rather than immediately if the party won the next election.

Reeves said she was “on the same page” as Keir Starmer, the Labour leader, and Ed Miliband, the shadow energy secretary, regarding the need to scale back the ambition of the plan.

One senior Labour source said: “There’s been a recognition for some time given the change in interest rates from when Rachel made the original announcement to where we are today that a clarification was required. It seemed to make sense to get out there and say it explicitly.”

While Reeves stressed the fiscal discipline of the move, Miliband later told the BBC’s World at One that also it was partly a matter of practicality, as it could take some time to get supply chains ready for the £28bn of spending. The party is “100% not abandoning our plan”, he added.

The Guardian revealed this month that shadow cabinet ministers had asked Reeves to expand the fund’s green mission and use it to pay for a series of capital spending projects, such as housing or transport infrastructure.

Reeves had indicated to colleagues there would be no additional money to pay for major infrastructure spending, leaving shadow ministers battling to claim a share of the green fund for their own projects.

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