Labour has backtracked on its £28 billion green prosperity plan in a bid to underline its commitment to “financial stability”.
Shadow chancellor Rachel Reeves said drastic changes to the economic backdrop over the past two years mean the party’s full spending pledge should be delayed.
Labour had promised in 2021 to invest £28 billion a year until 2030 in green projects if it came to power.
But Ms Reeves said on Friday this figure would instead be a target to work towards in the second half of a first parliament, blaming the Tories for having “crashed our economy”.
But the shadow chancellor, who is keen to demonstrate a firm grip on public finances, said exercising “responsibility” with borrowing should be the priority amid soaring interest rates and high inflation.
Ms Reeves appeared to admit that the party’s change in tone came as a result of fears that its flagship economic policy risked spooking the markets in the same way Liz Truss’s disastrous mini-budget did last year.
Asked whether the £28 billion pledge could have led Labour into “the same difficulties” as the former prime minister, she replied: “Which is why I always said our fiscal rules would always be non-negotiable because they are the rock of stability upon which everything else is built.”
Ms Reeves refused to say how much investment in the plan there would be in the first year of government but suggested details would be given following further fiscal updates from the Government.
“I will never be reckless with the public finances,” the shadow chancellor told BBC Radio 4’s Today programme.
“Economic stability, financial stability, always has to come first and it will do with Labour.
“That’s why it’s important to ramp up and phase up our plans to get to the investment we need to secure these jobs so that it is also consistent with those fiscal rules to get debt down as a share of GDP and to balance day-to-day spending.”
Ms Reeves insisted that Ed Miliband, the shadow net zero secretary under whose brief the prosperity plan fell, was “on the same page” as her and supported watering down the pledge.
Conservative Party chairman Greg Hands said the about-turn left Labour’s flagship economic policy “in tatters” while Green Party MP Caroline Lucas suggested Ms Reeves had “fallen at the first hurdle” by caving to opposition.
The green prosperity plan, billed as Labour’s answer to Joe Biden’s clean energy-promoting Inflation Reduction Act, included pledges to invest more in projects such as wind power and carbon capture.
But the party’s fiscal rule – that debt must be falling as a share of national income after five years – has always “come first”, Ms Reeves argued.
Analysts and campaigners suggested that failure to prioritise clean energy growth could defeat this goal by leading businesses to overlook Britain for investment in key industries such as green hydrogen.
Greenpeace UK said any U-turn would be a “huge mistake” and accused Labour of “prevarication”.
“Rachel Reeves rightly cites the opportunities of green growth, but this prevarication on confirming the scale of investment needed from the start of a new Labour government risks throwing in the towel on the global race in green tech, with the US, China and the EU already far ahead,” Rebecca Newsom, the group’s head of politics, said.
A word of caution also came from Labour’s own back benches, with former shadow chancellor John McDonnell urging the party not to “sabotage” its plan to appease critics.
In an opinion piece for The Guardian, he wrote: “If the clouds of smoke that are choking New Yorkers tell us anything, it is that there is no time to lose, no delay that can be countenanced, and there must be no reduction in the level of financial commitment to what is needed if we are to save our planet.”
The Green Party accused Labour of watering down its proposals to appease opposition and said the move renewed the case for more of its MPs to win seats at the next election.
Green co-leader Adrian Ramsay said: “Once again we see them offer a policy that does not go far enough, and then row back at the first sign of any difficulty.”