Budget Byte: Data Centres
What was announced?
At the heart of the Government’s budget proposal was a deal to industry: we will remove the barriers to building data centres if you make sure they are aligned with wider economic and community priorities. We believe this could offer a fresh start if the next steps are chosen carefully, and quickly. In summary, the proposals were:
The Data Centre Covenant: sets out five tests for operators to meet if they want to qualify as strategic and be considered for enhanced government support on faster connections: paying a fair share for energy; investing in local communities; stricter environmental standards; demonstrating economic benefits; providing resilient compute for public services.
The Draft National Policy Statement (NPS): a 94-page document defining the criteria Government will use to evaluate applications for Data Centres as Nationally Significant Infrastructure Projects (NSIP). This designation should provide a more predictable and potentially accelerated planning timetable.
Strategic Demand Consultation Response: the government confirmed it will let strategic projects connect to the grid more quickly where spaces have opened or been reserved, whilst tightening entry for data centres and capping their connections by region.
Written Ministerial Statement: joint ministerial statement outlining plans on how to grow the sector whilst addressing environmental and grid capacity concerns.
Where we agree:
Simplified planning: the NPS clarifies the NSIP process and assessment criteria for data centres for the first time, something which will simplify and hopefully accelerate planning decisions, something techUK has long championed.
Ministerial responsibility: as recently as September, we had called for a Minister to take control of the Digital Infrastructure brief. The proposed Ministerial Control Centre is a good first step towards a more coordinated approach to data centre policy.
Water and energy use reporting: the joint ministerial statement set out the standard of water and energy use reporting to increase transparency. We believe this will aid in debunking certain myths about the amount of water and energy data centres use.
Local benefits: we have long recognised the benefits data centres can have on the local economy; having to demonstrate these as clear conditions for Government support will help to increase their visibility amongst the public.
Where we need more:
What does it mean to be strategic? These proposals were a good first step. However, it remains unclear how projects will be prioritised once they pass the tests set out in the Covenant. For instance, would a data centre which provides compute to local public services be prioritised over one which delivers a greater economic benefit to the local area? The Government has committed to defining ‘strategic’ in due course, and much will hinge on that decision.
Who benefits? Any local benefit obligation under current planning law must be directly related to the development itself; the covenant is looking for wider community investment. The government must therefore be clear with operators what they will be legally expected to provide, and to whom, to avoid either party falling short of their obligations.
techUK's position
We agree with the Covenant that Data Centres can deliver much-needed economic growth right across the country. We also agree that the sector can more clearly demonstrate to the public the value of the sector and will work with them to do so.
However, the Government must set objective, attainable goals backed up by law to achieve those benefits. If not, Data Centres become the answer to every question the Government is asked on issues from economic growth to water availability, which will only serve to drive investment out of this country and ensure no community benefits from the sector at all.
What's next?
NPS response: We will coordinate a response to the NPS on behalf of members due in January 2027.
Ofgem: Decision on commitment fee to be in Q1 2027.
