The UK’s energy insecurity is a self-inflicted problem caused by political decision-making rather than resource scarcity, according to Alec Cutler, co-manager of Orbis Global Balanced and Orbis Global Cautious. With a shifting Labour government and key Cabinet positions up for grabs, Cutler cited his concern that the wrong choices could deepen the UK’s vulnerability to global energy price shocks.
Prime minister Keir Starmer announced this week that he will be resigning, with his replacement to be appointed by September.
Andy Burnham, former mayor of Greater Manchester and now MP for Makerfield, is widely viewed as the most likely successor but there is greater uncertainty surrounding who could replace Rachel Reeves as chancellor.
One possible candidate is secretary of state for energy security and net zero Ed Miliband. Although reportedly popular with Burnham, with the former mayor having served in Miliband’s shadow Cabinet as shadow health secretary – Miliband is viewed far less favourably by markets due to his aggressive stance on transitioning the country to net zero.
“The UK had energy security for a long, long time until the government decided to shut down the North Sea and shut down the coal flows – it is now sitting on top of tonnes of coal,” Cutler said.
“Miliband has single-handedly done more than anybody else in the UK to get [the country] into the energy situation it is now in. Every question that is asked, or every problem that arises, he thinks the answer is to shut down fossil fuels and give more wind and solar concessions away – this isn’t right.”
Miliband spearheaded the government’s ban on new exploration licences for fossil fuels in the North Sea and has further championed the windfall tax on oil and gas profits, pushing for more investment and policy support for domestic clean energies, such as wind, solar and carbon capture.
“We own three natural gas producers in the North Sea, primarily natural gas, and are waiting for the UK to figure out that it needs to embrace the North Sea energy producers rather than try to torture them and tax them to death,” Cutler said.
Earlier this year, current chancellor Rachel Reeves planned to announce an early end to the controversial windfall tax on North Sea oil and gas, which currently pushes the industry’s headline tax rate to just shy of 80%.
This plan was subsequently scrapped because of the outbreak of the conflict in the Middle East.
“They took that line out of [their plans] because it became politically unpalatable,” Cutler said. “But the UK needs to relieve the oppressive tax on North Sea energy producers, or the country is going to be stuck in a cycle of global events determining whether people can afford to fill up their cars with petrol, heat their homes or buy electricity.”
Miliband’s strong net zero commitments have also raised concerns around fiscal spending and inflationary pressure.
Indeed, Sharon Graham, general secretary of trade union Unite, warned against appointing Miliband as chancellor, arguing that a good chancellor should not rush into net zero without considering the implications for jobs, skills and national security.
Cutler said he would prefer a figure like Wes Streeting to handle energy. Streeting has recently expressed support for issuing new North Sea oil drilling licences, arguing that this would provide additional tax revenue for the Treasury.
Miliband’s supporters, however, would point to concrete results. In a speech expected today at London Climate Action Week, Miliband reportedly plans to announce that this Labour government has attracted over £100bn of investment into the clean energy sector, boosting UK jobs and growth.
James Alexander, chief executive officer of the UK Sustainable Investment and Finance Association (UKSIF), said: “Investors rely heavily on these pledges to commit financing to major infrastructure projects that will underpin our energy security for decades to come.
“This doesn’t just benefit individual industries but creates opportunities across supply chains, driving job creation and growth throughout the wider economy.”
Looking beyond the North Sea
In the longer-term, Cutler sees investment opportunities in nuclear energy in the UK but acknowledged that “while most want nuclear to happen, no one wants it in their backyard”. In addition, the build costs are high, and it takes a long time to get a nuclear plant permitted, financed and built.
He said part of the solution lies in small modular reactors (SMRs) – a smaller class of nuclear fission reactors. As such, Cutler added that he owns Rolls-Royce, which is a leading manufacturer in SMRs.
More broadly, the Orbis funds own several UK stocks that have done well despite the difficult domestic backdrop, with Cutler citing companies such as geotechnical specialist contractor Keller as “fantastic” additions to his portfolios, alongside Balfour Beatty, Drax and more recently Greggs.