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Labour’s promise to “reindustrialise” the UK through state-led spending in clean energy has been undermined by new analysis showing its plans still represent a cut to public investment.
Sir Keir Starmer donned a hard hat at Southampton’s port on Monday to promote his plans for a £7.3bn National Wealth Fund, intended to catalyse private sector investment in ports and green steel, gigafactories, carbon capture and green hydrogen.
The Labour leader has presented the fund as a central plank of his plan to revive economic growth through an active industrial strategy and claims that — along with separate state investment in home insulation — it will create 650,000 jobs.
But the think-tank IPPR said that even though Labour was promising to invest £4.7bn more than the current Conservative government, this still implied cuts to public investment over the next parliament. IPPR’s analysis, published on Tuesday, shows UK business investment was lower as a share of GDP in 2022 than in any other G7 country, for the third year running.
“If the economy is an engine, then investment is its fuel,” said George Dibb, associate director for economic policy at IPPR. “The government needs to take the lead by developing a green industrial strategy and show business that the UK is the secure, sensible and stable place to invest.”
The think-tank’s findings underscore the limits of the policies Labour has set out to lift growth by bolstering businesses’ confidence to invest.
The goal for the National Wealth Fund is to catalyse £3 of private sector investment for each £1 of public money that is spent.
But unions worry that public money will come too late to prevent job losses in carbon-intensive sectors. Sharon Graham, general secretary of the union Unite, has refused to endorse Labour’s manifesto because she said there was “still no viable plan for the replacement of North Sea jobs or energy security”, and she would not “let workers be thrown on the scrapheap”.
Meanwhile companies and trade groups said that while the National Wealth Fund was welcome, the next government would need to set out a clear plan for investors to back frontier technologies on a greater scale.
“With the UK’s competitors in the global race for green growth accelerating their efforts, Labour is right to recognise that the UK’s pitch must be focused on how we can outsmart rather than outspend our rivals,” said John Foster, chief policy and campaigns officer at the CBI business lobby.
While focused public spending could help to catalyse investment, economic growth in the next parliament would “come squarely off the back of the private sector” and “whoever wins the election must focus on creating the right enabling frameworks for unlocking business investment”, he added.
Business leaders in sectors set to benefit from the National Wealth Fund said policy continuity and a clear framework for investment would matter more than the money on offer.
Gareth Stace, director-general of UK Steel, the trade body, welcomed the promise to invest £2.5bn in the industry but stressed it was “not a magic wand”.
“Without a commitment from the next government to deliver once and for all the most competitive energy prices in Europe, then the UK steel sector will always remain uncompetitive and lose out on orders to European and global rivals,” said Stace.
Ruth Herbert, chief executive of the Carbon Capture and Storage Association, said companies were already working on the current government plan to create four “clusters” around the country to store carbon by 2030.
“A lot of companies have board meetings at the end of June and early July which kind of dictate, in some cases, their five-year investment programmes for 2025 and onwards. So not knowing where [Labour] are on this is quite problematic,” she said.
Meanwhile companies in the hydrogen sector said they wanted Labour to ease the planning process, with few local councils having any expertise on hydrogen, and give clarity on how the market might operate.
“You are going to need to introduce some kind of mechanism that incentivises the use of hydrogen, or some form of obligation,” said Keith Anderson, the managing director of Scottish Power. “It is a wee bit like in the early days of renewables where you created a renewables obligation. And then you eventually get to a point where you don’t need the obligation.”
Jonathan Walker, head of infrastructure and cities at Logistics UK, said the plan to invest £1.8bn in upgrading ports was “welcome and positive”. But he said that “the devil is in the detail” — and that broader efforts to improve the UK’s trading relationship with the EU would also be important to the logistics industry, given the need to lessen disruption and delays.
James Alexander, chief executive of the UK Sustainable Investment and Finance Association, said the “tactical deployment” of public investment could be effective, but that “creating the correct policy environment for investments to thrive” was crucial — and that a lack of clarity on the long-term aims for the automotive sector was “destroying” investor confidence.
Jon Phillips, chief executive of the Global Infrastructure Investor Association, which represents 100 investors worldwide, said it was “encouraging” that a Labour government would seek advice from a British Infrastructure Council but that investors wanted more clarity on how the National Wealth Fund would work with existing bodies such as the UK Infrastructure Bank and British Business Bank.
Reporting by Delphine Strauss, Malcolm Moore, Sylvia Pfeifer, Gill Plimmer and Oliver Telling
