Equities  

Managers slam Labour energy plan

Major fund managers including UK income giant Neil Woodford have slammed Labour leader Ed Miliband’s pledge to freeze energy prices, warning it would make the sector uninvestable.

The leader of the opposition told his party’s conference in Brighton that he would freeze energy prices until 2017 if elected prime minister at the 2015 general election.

But fund managers warned this would be damaging to the energy sector, which is dominated by six major businesses including Centrica and SSE, which are major holdings of Mr Woodford.

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The fund manager last week said Mr Miliband had “at a stroke torpedoed any chance” of energy companies committing to investment in infrastructure between now and the next election, speaking to the Daily Telegraph.

“If Centrica and SSE cannot make any money supplying electricity to the retail market, then they won’t supply it,” he told the paper.

“The lights will go off, the economy will shut down. [This policy] is economic vandalism at a time when this country needs all the help it can get.

“It is insane; not least it is also fundamentally dishonest to suggest to the electorate that electricity and gas prices are where they are because of profiteering by the companies.”

Chris Rodgers, UK equity manager at Four Capital, told Investment Adviser price controls would make energy stocks “very unattractive”.

“The idea is a return to the bad old days of industrial policies of intervention and, as someone who believes in markets, it is anathema.”

Mr Rodgers said investors who favoured energy stocks would have to be “brave” to invest in them now and he hoped Mr Miliband was not elected. But polling suggests he is on course for a landslide win.

Martin Cholwill, manager of the £517.3m Royal London UK Equity Income fund, said he had been assessing parts of the market that were vulnerable to political intervention and, as such, had decided not to hold any UK energy stocks.

“Once the sector becomes politicised, as this space is now, it is very difficult for the companies to know what response to make,” he said.

“A company like Centrica would normally plan a price rise about this time of year once the party conferences were over, but doing that now would be a much higher profile thing.”

Mr Cholwill added the pledge by Labour would hang over energy companies.

“The key to success is sustainability [of dividends] and while a company like Centrica has no problem with cashflow or its balance sheet, this political intervention creates huge uncertainty.”

The manager said intervention by politicians in other countries had been negative for the sector, citing “plunging” prices in the Spanish utility sector after the government intervened in the industry.

What is Ed Miliband proposing?

The Labour leader grabbed the headlines at his party conference last week with his pledge to freeze energy prices until 2017 if he were elected prime minister in 2015.