North Sea drilling and public control of water and utilities key battlegrounds in the wake of Starmer’s resignation

The UK is entering a period of political uncertainty after Starmer announced his departure, raising questions over the future direction of the government’s net zero agenda. With former Manchester mayor and now MP Andy Burnham widely expected to succeed him, what are the areas of change and continuity investors can expect?

A key indicator of political risk in UK financial markets is the yield on long-dated government debt. Yields rose to 4.869% ahead of Starmer’s announcement but subsequently fell back to 4.800% after Wes Streeting, a potential leadership contender, signalled his support for Burnham. This suggested markets were primarily focused on signals of stability rather than political upheaval.

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Over the longer term, investors are likely to remain attentive to borrowing costs, which could constrain the scale of future government backing for large infrastructure and net zero-related investment.

While Burnham may appoint a new chancellor, he has already committed to maintaining the fiscal rules set by the current chancellor Rachel Reeves, signalling continuity in the government’s approach to fiscal discipline and reducing the likelihood of a sharp rise in public borrowing.

Starmer and Miliband’s net zero legacy

Although in power for less than two years, the outgoing Labour government significantly expanded policies supporting the energy transition. Under Energy secretary Ed Miliband, the administration set a target for clean energy sources to account for at least 95% of electricity generation by 2030.

The government accelerated deployment of onshore and offshore wind and solar power, including lifting restrictions on onshore wind in England and expanding renewable energy auction rounds. These policy signals helped strengthen investor appetite, with recent wind and solar auctions attracting record participation.

It also established Great British Energy, a publicly owned energy company designed to co-invest in renewable projects and help de-risk early-stage developments.

However, the government has faced criticism from environmental groups over planning reforms intended to speed up housing and infrastructure delivery. Critics argue these reforms weaken certain habitat protections, making it easier to develop on environmentally sensitive land. Organisations including the Wildlife Trusts and the National Trust have raised concerns about potential impacts on biodiversity.

North Sea drilling and public ownership

While it remains unclear how a potential future government led by Andy Burnham would position itself on renewable infrastructure and electrification, he has previously expressed support for the Clean Power 2030 agenda and is widely expected to back initiatives such as Great British Energy. As mayor of Greater Manchester, he also set an ambitious local net zero target of 2038, suggesting strong alignment with the broader energy transition.

One area where policy direction could shift is public ownership of essential services. There is growing speculation that Burnham could favour greater public control across parts of the UK utilities sector, aimed at improving performance, reducing bills and addressing environmental concerns.

The outgoing Labour government had been preparing for the possibility of placing Thames Water into a Special Administration Regime (SAR) after rejecting a private-sector rescue proposal from creditors. Such a move could have significant implications for institutional investors, including major pension funds such as USS and the BT Pension Scheme, which are exposed to the sector. Thames Water’s largest shareholder, OMERS, wrote down its 31% stake in 2024.

Closer control

Investors in other UK utilities are likely to monitor policy closely, particularly equity holders, given the potential for increased regulatory intervention or restructuring risk.

In other utilities, Burnham may be more inclined towards increased oversight rather than full nationalisation, drawing comparisons with reforms to the Manchester bus network. While services are still operated by private contractors, fares have been capped and public authorities have taken a stronger role in service design and control. 

Having a greater say over the management of utilities could also emerge as a lever for government to push for electrification reforms such as the rollout of heat pumps and grid infrastructure investments. 

Another potential area of divergence is North Sea oil and gas policy. The outgoing government has pledged to issue no new oil and gas licences while allowing production from existing fields to continue,  a position that has drawn criticism from opposition parties.

Burnham has previously said he is “open-minded” about expanding North Sea drilling, according to reports in The Telegraph, indicating he does not yet hold a fixed position on the issue.

Meanwhile, trade unions including Unite and GMB, both major Labour supporters, have opposed any outright ban on new drilling without stronger guarantees for jobs and transition support for North Sea workers.

Overall, climate-focused investors can likely expect broad continuity in the UK’s net zero trajectory under a Burnham-led government. However, increased debate around public ownership of utilities and a potentially less settled position on North Sea oil and gas licensing could emerge as potential curveballs.

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