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The UK's main opposition party, which has a 20-point lead over the current government, has announced it is no longer sticking to the commitment that a Labour government would borrow £28bn a year for green capital spending. The promise, which was originally unveiled by financial spokesperson Rachel Reeves, was later amended twice over the course of the past year, both times reducing the amount of money that would be involved in the Green investment.
“There is a global race taking place and we want Britain to be leading it.”
The original plan was made before the current inflation event and subsequent interest rate rises.
On Thursday, leader of the Labour Party, Sir Keir Starmer announced that the fund would be reduced significantly. “The circumstances have changed, but our ambitions for Britain have not,” said Starmer and Reeves in a co-written opinion piece in the Guardian. “There is a global race taking place and we want Britain to be leading it.”
The new pledge is for less than £5 billion per year in green borrowing.
This is relevant to investment teams at insurance companies because one of the leading portfolio choices of many is to invest in UK government bonds with the £28 billion that had been promised, there would have been many opportunities to invest in large-scale long-term projects that would have been safely and expertly managed, giving much more credibility to the projects and therefore attracting a wider pool of investors.
The issue of green investment as well as wider investment in the UK is a major political issue. The election is due by the end of January next year, with most political commentators saying it will likely take place in the autumn.
The Labour Party have made much mileage over the lack of investment by the government in the UK’s infrastructure, especially with its lower-than-hoped efforts at green investments opportunities such as renewable energy and lower emission transport projects, which includes the controversial cancellation of parts of the HS2 railway network in late 2023.
The Labour Party have said the reason for this green investment fund being curtailed to such an extent is because of the economic mismanagement by the current UK Government, partly due to Liz Truss's controversial mini-budget in 2022, which stepped off an LDI crisis as well as the current inflationary and interest rate event that has been happening for several years now. Also, the under investment by the current UK government was said to have been so large that funding it would be a much longer process to make the UK a leader in the market.
“The UK is increasingly relying on overseas investment
for income and critical infrastructure."
Sir Howard Davies, Chairman of NatWest Group, said at last year's Insurance Investor Live | Europe conference in September that the UK was chronically under investing in itself and that if he wanted the UK to step up its investments in its own infrastructure and its own infrastructure because it was severely behind other countries. At the conference, Davies expressed hesitation at the amount of overseas investment he saw when asked if there was a deeper, structural decline in UK capital markets happening. “The UK is increasingly relying on overseas investment for income and critical infrastructure,” he said. “Our stock market performance has been dismal.”
He called the situation “capitalism without any UK capital” and suggested that increased promotion of fintech and other innovative spheres – likely Artificial Intelligence (AI) and tokenisation, for example – was necessary.
Davies also gave examples such as airports in the UK, which he said were largely owned by foreign financial consortiums.
“The UK’s tank is running on empty and it’s harming economic growth, driving inequality, and slowing the pathway to net zero and energy security.”
Others have also mentioned the lack of investment in the UK from its own government and also UK PLC. There is a noted lack of investment from large scale UK institutional investors within the country. This has been seen from utilities, Infrastructure, and transport projects, as well as green projects going forward and other areas such as biotech research as well as more renewable and green energy projects.
“If the economy is the engine of a country, investment is its fuel,” said IPRR. “But the UK’s tank is running on empty and it’s harming economic growth, driving inequality, and slowing the pathway to net zero and energy security.”
However, Starmer, leader of the Labour Party, has said that there will still be extensive green investments and that the £28 billion mark was always meant as a stepping stone to the real number to be decided once the government was set after the next election.
Commenters in the media have said that there will be around £5 to £10 billion, possibly as high as £15 billion per year avaialble for the projects.
Sky News also noted there was a smaller number of investment projects for Labour to put the money into and that they could only find enough projects to warrant around £10 to £15 billion.
This means that the UK will now have even more pressure on its net zero investment ambitions and to keep pace with the rest of the world as well as reversing decades of underinvestment. It also means that institutional investors will have less government support in their own green projects and will have to go it alone more often.
However, the lack of available projects could also mean that for those able to do projects independently there is a surfeit of opportunity to stake their claim.
Industry reaction was swift and largely dismayed. "The UK has a golden opportunity to be a leader in the green transition and should be making ambitious strides towards sustainable leadership," said UKSIF CEO James Alexander. "Whoever forms the next government should seize that opportunity, and ensure resources are made available to avoid to UK losing out on green jobs of the future, but more importantly, ensuring we attract billions in private investment into the UK. In that context, [this] announcement on Labour’s plans for public investment is disappointing.
However, Alexander added that "the furore about Labour’s commitment on £28 billion of public investment has very quickly become a distraction". "The real prize is to attract hundreds of billions in private capital, " he said. "Public funding makes a difference, but policymakers must remain clear-eyed about the much greater quantity of private capital available to help the UK reach net-zero."
Alexander said a solution for several problems around the UK's chronic underinvestment could be for all parties to advance wider proposals for a green industrial strategy and a comprehensive response to the US Inflation Reduction Act.
