Labour’s plans to grow the economy with private capital are already under scrutiny.
The CEO of Stellantis UK has threatened to shut its British factories unless the next government provides more incentives to boost electric vehicle production and cuts quotas for zero-emissions vehicles.
So what? Labour’s industrial strategy is already getting its tyres kicked. If victorious, the party says it will boost growth by using
- publicly-funded quangos like GB Energy; and
- a new National Wealth Fund to leverage billions in private money, including £1.5 billion to catalyse investment in new EV gigafactories.
Is it enough? As Andy Haldane, former chief economist at the Bank of England, remarked this week: “quangocracy does not a growth plan make”.
PFI 2.0? Public-private partnership has a chequered history in the UK. In 2018, then-chancellor Philip Hammond ditched the Private Finance Initiative (PFI) after the collapse of Carillion and an audit report that found £170 billion of taxpayer money had been spent on projects that in the end produced assets worth barely £60 million.
PFI left deep scars. More than 300 contracts will expire in the next decade. Some have already ended in shouting matches and lawsuits. “If there’s a very big [Labour] majority, the backbenchers will have loud voices, and I think there will be some internal resistance to working collaboratively with the private sector,” says Sarah Gordon of the Grantham Research Institute at LSE.
Crowd in, everybody. Supporters of Labour’s plan say this time is different – this is not an attempt to shift public responsibilities off the public balance sheet. Instead, £7.3 billion worth of taxpayer money invested in the Wealth Fund will be used “strategically” to take stakes in projects and “crowd in” additional private money
- at a ratio of 1:3,
- with a remit to support Labour’s growth and clean energy missions,
- while collaborating closely with private partners.
Rachel Reeves has assembled a shadow infrastructure council to advise on a pipeline of projects, financing mechanisms and metrics to gauge success. It includes banks and asset managers from HSBC, BlackRock, Lloyds Banking Group, Santander, Phoenix Group, CPP Investments and CDPQ.
Pick your pool. An obvious source of private funds is the £2.5 trillion of UK pension assets. But the next government will also need to look further afield:
- Foreign direct investment in UK projects is at its lowest since Brexit.
- Sources close to the council say members support the idea of an international investment summit within the first 100 days of the next government.
- There’s also support for the idea of creating a “single front door” for global investors by bolstering the existing Office for Investment.
During a TV debate on Wednesday, Keir Starmer said he’d been chatting up “global investors for the best part of two years”, but a lot is riding on the muscle of the civil service to get the new quangos up and running quickly so that investment can flow.
Up against the IRA. This week’s intervention from Stellantis cast doubt on whether Labour’s plan is big or bold enough to compete with the vast subsidies on offer in the US’s Inflation Reduction Act.
Experts say the strategy is to “outsmart rather than outspend” by playing to Britain’s sectoral strengths. That tracks with Labour’s cautious approach: InvestEU, a similar scheme, promises to bring in private capital at a bigger ratio of 5:1.
“There are sectors and bits of the market where the UK has and should be encouraging a comparative advantage with the US that wouldn’t have us competing head-to-head,” Gordon says. Turning less-productive parts of the country into hubs for offshore wind, carbon capture or tidal stream is seen as the way to capitalise.
What’s more, the OBR has estimated that the cost of reaching net zero by 2050 is £1.4 trillion, requiring upfront investments that pay out later down the line. Labour needs good governance and clear communication to ensure that “hundreds of billions” won’t have to come solely from the public purse – and that, unlike PFI, the risks and rewards are shared fairly.
