Necessity is the mother of invention. Once upon a time (from 2021 up until the first week of February), Labour promised £28bn of public investment in net zero. Aeons passed (the second week of February) and it then promised £5bn of new money but with a proposed private-sector match of three times every public pound. Now, we may be jumping to a newer era, in which private investment does almost all of the work with government as seed capital. How is this possible, you may ask?
Enter Mark Carney, former governor of the Bank of England and now global doyen of green finance. Carney was the eye candy of Labour party conference 2023. His endorsement video was the crowning achievement of the party’s love-in with business. Now, Labour has asked Carney to sit alongside the bosses of Aviva, Barclays and a number of leading global investors on a new taskforce. Its purpose is to advise the party on how to leverage a relatively small amount of public funds—the proposed £7bn sovereign wealth fund—to generate far greater multiples of private-sector green investment. All of this will be convened by the well-respected Rhian-Mari Thomas and her team at the Green Finance Institute.
You might worry that all these grandees are too busy to spend much time on a taskforce. But if they dig in, it could move the needle for UK growth. We will need more than Carney’s credibility—we’ll need his brains, know-how, contacts book and revenue-generating power.
This initiative is highly significant for a number of reasons. The first is that while Labour business taskforces are multiplying, this one has a deeply serious brief that is essential in making the party’s growth plan stack up. The second is that it puts Labour politicians together with global titans of capitalism. Ed Miliband used to divide businesses into predators and producers. Now Labour has gathered a bunch of predators keen to produce—and with them access to a cavalry of would-be investors who want to help us get to net zero. Finally, this shows that the original Labour growth model—national assets nationally delivered and nationally funded—is to be replaced by national assets, delivered by companies, funded by markets, facilitated by government.
The era of big green government is over. The era of genuine partnership with the market has begun.
This is extremely important economically. There is a lot of green investment looking for a home but it needs government to make the numbers work. Sometimes that is about the government funding the parts that the market won’t, in particular early stage R&D in new climate technologies, or collective infrastructure that no single company can afford. Other times, it’s about creating what we in the trade call an “investable proposition”. The great British success story is offshore wind. Essentially the government created a revenue model for investors to receive recurring returns from their investment while de-risking them from exposure to terrible outcomes. As one massive global investor said to me at the time: “I don’t need the government’s subsidy for green projects—I just need them to provide a convincing path to getting my money back with a decent return year on year. Then there is all the capital in the world”.
This is also important politically. For the Tories, “green” means subsidised growth and bad politics. But if this works out, Labour could stay pro green and be able to afford it. What’s more, Rachel Reeves and Ed Miliband jointly oversee this taskforce. Could it be the vehicle through which both start agreeing on the green growth plan after months of disagreement?
The announcement may have fallen a little flat on Sunday but in my opinion, this is the most significant Labour announcement in 12 months. In November’s Prospect I wrote of Labour’s growth plan: “The focus will need to shift from how much can government spend, to how much private sector spend can government unlock… Labour needs to persuade UK capital markets, UK-based green businesses and global energy companies that the country will compete on private sector-led green growth. It should now build the expertise that Whitehall has so far lacked to design green market mechanisms”
Much as I’d like to take credit for this development, it lies with Rishi Sunak and Jeremy Hunt. By making fiscal credibility the battle of the next election, they have forced Labour off their £28bn pledge and into the hands of flourishing green markets, enabled by the government’s balance sheet. In so doing, I believe the Tory strategy will backfire. Because if Labour listen to its new taskforce, the party will unlock the holy grail: growth at a fraction of the cost.
Labour didn’t start as the mother of green markets. It wanted a conventional state intervention. But the party’s ended up in a far more powerful place—and should embrace it.
