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Labour leader Sir Keir Starmer was criticised by environmental campaigners on Thursday for abandoning his target to spend £28bn a year on green investment after weeks of confusion about the flagship policy. 

Starmer is poised to use a set piece event to drop the £28bn figure from Labour’s “green prosperity plan”, blaming the worsening public finances under the Conservative government.

Several party figures confirmed Starmer would rein in the scope of what until now has been his most expensive and most ambitious policy, with Labour proposing to borrow billions to invest in green industries. 

Mike Childs, head of policy at Friends of the Earth, said cutting the policy would be “short-sighted” given the UK was already lagging behind other countries in the shift to a new low-carbon economy. “For years UK climate action has been undermined by dither, delay and lukewarm support from government. We urgently need real political leadership to confront the climate crisis,” he said.

The Tories seized on the U-turn. Laura Trott, chief secretary to the Treasury, said Starmer was dropping “what he has claimed to be his central economic policy purely for short-term campaigning reasons”.

The U-turn is awkward for Starmer given he was using the £28bn figure as recently as the start of this week in an interview with Times Radio.

But other senior Labour figures, including shadow chancellor Rachel Reeves, had stopped citing the number in recent weeks.

Reeves, asked 10 times about the £28bn annual spending target at a business event last week, refused to stand by it and instead emphasised her commitment to “iron discipline” with the public finances. 

It was Reeves who pledged in 2021, when interest rates were close to zero, that a Labour government would borrow £28bn a year for green capital spending. 

The party was emboldened when US President Joe Biden subsequently introduced his ambitious Inflation Reduction Act, which funnelled huge amounts of public subsidy to low-carbon industries in the US. 

But with interest rates having risen sharply to tackle a surge in inflation, Labour became nervous about the financial implications of its green prosperity plan.

The party had already scaled back the policy, partly by saying it would gradually increase green spending to £28bn a year by the end of the first term of a Labour government.

Reeves also announced the policy would have to comply with Labour’s fiscal rules, under which public debt as a proportion of gross domestic product must be falling after five years. 

Despite those changes, Prime Minister Rishi Sunak and other ministers repeatedly claimed that Labour’s green prosperity plan represented an irresponsible amount of extra debt when public finances were already strained.

For more than two months there has been an intense debate at the highest levels of the party over whether to water down the target. One shadow cabinet member said: “Keir was really attached to the policy. He thinks it’s important and didn’t want to let it go.” 

The completion of the slow motion £28bn U-turn was originally planned to be announced around the time of Jeremy Hunt’s Budget, Labour sources said, allowing Starmer to blame the chancellor’s “scorched earth” fiscal policy.

But Starmer decided to draw a line under the affair this week to avoid taking further political hits, timing his announcement to coincide with the first day of the February half-term Commons recess, when MPs are away from Westminster.

The overall plan includes the creation of a state-owned energy company to invest in renewable power, a £6bn-a-year insulation programme for homes, and a “sovereign wealth fund” to oversee the decarbonisation of British industries through measures such as extra funding for green steel and gigafactories.

Starmer is expected to insist on Thursday that Labour will press ahead with many of these proposals, including the state-owned energy company and the sovereign wealth fund.

However, Labour has scaled back the home insulation programme by saying the £6bn annual figure will not be reached for five years and is subject to the party’s fiscal rules.

Sharon Graham, general secretary of the Unite union, said Starmer’s watering down of the GPP would “confirm workers’ scepticism of the endless promises of jam tomorrow.” 

“If different choices aren’t made Britain will again lag behind other nations,” she said. “The Labour movement has to stand up to the Conservatives’ false accusations of fiscal irresponsibility.”