Joe Peck is a Research Analyst at the Urban Institute in Washington DC. He has worked with the Roosevelt Institute and consulted members of the Biden administration on the success of industrial policy and workforce development initiatives in fostering economic mobility for low-income workers throughout the United States.

Since coming to office in January 2021, the Biden Administration has overseen the passage of three large industrial bills that have greatly increased the hand of the American government in its domestic market.

The first of these, the CHIPS and Science Act (set to support domestic microchip manufacture and innovation) and the second, the Infrastructure, Investment, and Jobs Act (which raised infrastructure spending), together amount to $900 billion of public investment. But the third bill—the Inflation Reduction Act (IRA), which looks set to cut US emissions by roughly 45% below 2005 levels by 2035—leaves the other two trailing. The $1tn worth of tax credits, grants, and incentives contained within it has proven a coup not just for the climate movement but for the US manufacturing sector.

With the Labour Party likely to form the next UK government and implement its own ‘Green Prosperity Plan’, Britain can learn from the successes of the American model. Rachel Reeves has referenced the IRA as the kind of market intervention that would be at the heart of her Biden-inspired ‘Securonomics’, but emulating the US will not be easy. The United Kingdom is not large enough or competitive enough simply to copy the IRA and expect the same returns. Only by learning the right lessons from the IRA’s implementation can the next government revitalise economic growth, reduce carbon emissions, and rebalance the economy.

The pace at which companies have announced battery, solar, electric vehicle, hydrogen, and wind programmes under the IRA’s provisions has been notably high: both higher than previous American industrial bills and higher than the expectations of those who drafted this one.

In part, this is due to the decentralisation of investment decisions. Unlike even the 2022 infrastructure bill (which contained a number of green energy infrastructure projects), the size and nature of IRA investments are not agreed by a central body. Private companies decide where they want to invest, make those investments, and apply for tax credits later, as opposed to waiting for government approval on specific projects.

This model of funding has precedence in US law: both the 2009 American Recovery and Reinvestment Act and the CHIPS Act incentivised private investment this way, each with their own success. Britain might not attract the same levels of investment overall as the United States with the same method. However, by ensuring that tax credits accommodate industries like tidal, offshore wind, and carbon capture technology where Britain has a comparative advantage, it can strengthen its green industrial base where it counts.

The great advantage of financing projects through the tax system is that projects can be started quickly. Forecasts suggest that the share of US energy generation from clean sources would reach 49% by 2030 without the IRA. Now it could be as high as 85%. While Americans’ reliance on dirty energy has been waning for some time, 90% of the new energy capacity added between 2023 and 2026 is set to be from clean sources. The IRA has ensured that the clean energy transition has moved apace (Fig. 1). Nobody has been left waiting for federal dollars to start flowing.

The IRA does not blindly dole out money to companies, but is designed to direct investment towards green industries. With the exception of a small number of provisions in the bill that are unrelated to climate change, all of the money available through IRA’s funding mechanisms must be spent on clean energy projects—a fixed, unnegotiable condition.

The law’s conditionalities do not stop there. The IRA is formed of a clever system of tax credits and grants designed also to improve workforce development, strengthen worker pay, and reduce geographic inequality at the same time as bolstering the American renewable energy sector.

The first of these comes by incentivising companies to incorporate apprenticeship opportunities in their projects and pay a union-level wage (also known as the ‘prevailing wage’). If they achieve both, the value of their tax credit rises from 6% to 30%. They can then earn additional subsidies from the federal government if projects are based in a low-income community or on Tribal land.

Further bonuses are available for companies investing in energy communities: those which were historically reliant on coal and natural gas extraction. This extra financial incentive has proved incredibly popular and over half of the new green energy capacity in the US qualifies for it. The IRA therefore offers a financial lifeline to workers who are at the greatest risk of losing work as a result of industrial change.

A potential Labour government could apply a similar model here. The party’s British Jobs Bonus promises to allocate up to £500 million a year in capital grants to green employers providing high quality jobs. It is important that the government clearly establishes which conditions companies must fulfil to receive these funds and the application process for them is not overly cumbersome.

These grants should incentivise good jobs. But it is important that they create jobs in the areas that need them most. Just like the US, some parts of the UK are more vulnerable to the ongoing energy transition than others. Smart policy can help protect these workers and their livelihoods, and channel investment to areas at the sharp edge of the energy transition.

A future government in pursuit of an equitable industrial policy should not depend on tax incentives alone, as the tax system cannot oblige firms to account for externalities in their investment decisions. Where economic and social inequalities persist, more direct public action will be necessary. The IRA is a case in point: funding is primarily going to areas with a disproportionately high number of workers with a bachelor’s or postgraduate degree (Fig. 3).

Because of the current gridlock in the US political system, it is unlikely there will be any reforms to the IRA soon. Should a Labour government come to office, it will not be so unlucky. If, after a period of implementation, private companies in the UK are not distributing green investment equitably, a Labour government could modify their system of conditionalities accordingly. In those regions and industries which have received relatively little funding, the government could step in to directly fund new infrastructure, energy, and manufacturing opportunities through a national wealth fund; institute a system of co-investment funds to catalyse investments in lagging regions; or invest in workforce development. The Labour Party has pre-emptively allotted specific amounts of money in its wealth fund for certain sectors. It is important that these investments are responsive both to existing economic needs across the regions and trends in private-sector growth.

The private sector cannot answer the problems of regional inequality alone. There are already areas in the UK that have huge potential for growth yet are restricted by access to private investment. Rapid changes in industrial composition look set to create more. A Labour government must recognise this, analyse where private-led funding is failing to remedy existing inequalities, and set forth a public-sector approach to remedy them.

Assigning money to clean energy projects is one thing. Finding workers to make use of that money is another. With the exception of some localities, few post-industrial areas have a high share of workers with the right skills to move into growing industries. This means that skills gaps between workers and green jobs not only inhibit growth but could facilitate greater regional inequality.

The UK’s approach to skills development has three central flaws, each of which makes the UK less likely to match the challenge of the ongoing industrial transition.

First, unlike in the US, limited data exists in the UK through which government departments can analyse skills gaps between occupations and workers. Importantly, the government will struggle to improve retraining if there remains insufficient data on the supply of skills across local labour markets.

Second, while a number of resources and programmes exist for those seeking new training opportunities, none of these is tailored to workers’ occupational profiles, let alone the previous tasks and competencies undertaken in these roles.

Third, the existing structure of skills support is primed for those actively seeking new opportunities, and no government body is focused on reaching out to those in shrinking industries or occupations.

The IRA shows how crucial workforce development is to green investment. Companies are more likely to invest in areas with a higher number of workforce development centres.[1] Further, where states have offered incentive packages to companies, such as in South Carolina, Louisiana, and Michigan, the creation of new upskilling programmes have been central to these. The US workforce development system, while not perfect, has a strong record of reskilling workers for the green jobs of tomorrow, complementing the additional tax credits for apprenticeships in the IRA.

Some recent commentary has argued that a Labour government should avoid mimicking ‘Bidenomics’, pointing to the sluggish popularity of President Biden and the poor polling for his economic positions. This is a misreading of how Americans view the administration’s handling of the economy. For those who have heard of it, the IRA is very popular. Less popular is inflation, for which voters broadly blame the US government. The more immediate cost of living crisis has clouded an otherwise impressive economic record.

If Labour is keen to avoid a similar electoral blowback to their economic plans, they should emphasise the potential rewards to their industrial investments, including their chance of spurring regional growth, and make clear that these benefits will not be felt in the short term.

The UK has overseen place-based interventions before. The US shows how we could most effectively do so again.

For policymakers worried that industrial funds will fruitlessly subsidise businesses, benefit already-tight local labour markets, or not translate into higher pay for workers, conditionalities show how their higher goals can be protected. Then, by drawing on the US ‘crowding-in’ model while filling in its shortfalls with publicly-directed investments, UK industrial policy can be made more equitable. With a proper approach to workforce development, it can be made more efficient.

The next major energy transition is here. A Labour government must learn the right lessons to make the most of it.