A deal with strings attached
Britain's data centre boom now comes with conditions. Chancellor John Healey has launched a British Data Centre Covenant that requires new strategic data centres to bring clear benefits to the communities that host them, in return for priority access to the electricity grid and, where necessary, permission to build power generation on site. The announcement, made in the Budget on 28 October 2026, is the government's most direct attempt yet to answer a backlash that has been building in towns and villages across the country.
Data centres are the physical backbone of the artificial intelligence age. They store, process, and transmit the information that powers everything from hospital records to military systems, and their numbers are growing fast as AI use expands. The government has described them as critical to nearly all economic activity and public services. Yet for the people who live next door to a proposed site, the calculation looks very different. A data centre can demand enormous amounts of electricity and water, change the character of a landscape, and, critics say, deliver relatively few lasting local jobs once construction ends.
Healey's answer is a bargain. "Built on sovereignty and security, I want to ensure that the British people can benefit from the huge potential upsides of AI," he told Parliament. In practice, that means operators that want the government's help getting connected to the grid must first show what they will give back. The covenant sets out five tests, and strategic data centres must meet them to qualify for additional government action.
The five tests
The first test concerns electricity bills. Data centres must pay a fair share of energy costs, support grid resilience and flexibility, and invest in clean power, so that households and businesses do not end up subsidising data centre growth. This is one of the most politically sensitive parts of the debate. Energy prices remain a pressing concern for families, and the idea that ordinary bill payers might underwrite the power needs of tech giants is deeply unpopular. The covenant aims to close that argument by making a fair contribution a condition of support.
The second test is the one that gives the BBC story its headline: invest in improving local communities. Strategic data centres must agree a Local Benefit Plan with the local community, sized to the development, committing to substantial investment that can be spent on local priorities such as transport, parks, and town centres. Communities should have a meaningful say in how the benefits are designed and allocated. The government notes that developers already meet planning requirements such as Section 106 agreements and the Community Infrastructure Levy, which fund local infrastructure. Strategic data centre developers, it says, will be required to go further.
The third test sets environmental standards. Data centres must protect nature, minimise water use, and publish annual reports on their energy and water consumption. New facilities should be designed to achieve a Power Usage Effectiveness of 1.3 or better, a measure of how efficiently a building uses energy, and should minimise demand for public water supplies by using technologies such as closed loop cooling systems, where liquid is recirculated rather than drawn continuously from the mains. Developers should also capture the heat they produce for nearby homes, schools, hospitals, or businesses wherever a viable local user exists, rather than letting it go to waste.
The roof of a data centre building
A data centre building. Credit: Wikimedia Commons, CC0
The fourth test covers jobs and the wider economy. Operators must recruit locally, invest in apprenticeships and training, prioritise UK suppliers and technologies, and contribute to British AI hardware. The construction and maintenance of AI data centres will increase local employment and open opportunities for local suppliers, according to the government, but the covenant wants those benefits to be deliberate rather than incidental.
The fifth test is about security. Data centres must provide secure and reliable access to the computing the UK needs, including for the NHS and other public services. They should work with the relevant national technical authorities, including the National Cyber Security Centre, to enhance resilience against cyber and hybrid threats beyond baseline requirements. Healey said the aim was to keep sensitive data used by public services and the armed forces in Britain as AI use expands, a sovereignty argument that runs through the whole package.
Why communities pushed back
The covenant did not emerge from nowhere. Across Britain, data centre proposals have met organised local opposition, often driven by environmental concerns and by a sense that the benefits flow elsewhere while the costs stay local. A large facility can dominate a landscape, strain local water supplies, and place heavy demands on a grid connection queue that already affects homes and businesses. In some areas, the scale of proposals has led to them being classed as nationally significant infrastructure projects, which means the final decision rests with the government rather than the local council, a shift that can leave residents feeling sidelined.
The politics are not confined to Britain. In the United States, Democrats and Republicans alike have come out against data centre development in some areas, amid a growing backlash over power, water, and land. Industry spending is vast, with reports putting global AI infrastructure spending at hundreds of billions of dollars this year and rising further next year, which only sharpens the question facing host communities: how much power, water, and land should one industry claim?
Research also complicates the industry's jobs argument. A recent report from the Brookings Center, cited in coverage of the backlash, suggested data centres do create local jobs, although fewer than industry advocates claim. The type of facility matters: large hyperscale sites owned by tech giants were found to have a bigger positive effect on jobs, while colocation facilities, which lease space to remote tenants without a local presence, brought fewer benefits. For a community weighing a proposal, who owns the site and how it operates may matter as much as its size.
What the covenant changes, and what it does not
The covenant is part of a wider AI package in the Budget. Reports say it adds 500 million pounds for AI safety and security and 140 million pounds for the sovereign AI unit, alongside an AI Challenge Prize to encourage the use of AI in public services and funding to support workers adapting to technological change. Healey also announced measures aimed at giving regional leaders greater control over investment and economic growth, which business groups welcomed as a way to make more coordinated decisions about local infrastructure.
The scale of the pipeline shows why the government felt it had to act. According to Computer Weekly reporting, the UK data centre pipeline includes 173 projects with more than 14 gigawatts of planned capacity. Scotland has recently paused planning and consent decisions for large data centres until national guidance arrives, while requiring environmental impact assessments for projects above 50 megawatts. The covenant is intended to bring order to that pipeline, rewarding projects that meet its tests with faster grid access and leaving others to wait.
Critics will ask whether the tests are strong enough, and whether they will be enforced. The covenant says strategic data centres must meet the tests to qualify for additional government action, and must report annually on energy and water use, efficiency, emissions, heat reuse, and participation in flexibility services. Existing operators are strongly encouraged to do the same, but encouragement is not compulsion. The real test will come when a major project that fails on local benefits or water use still seeks priority grid access, and ministers have to decide whether to say no.
There is also a pointed gap noted by analysts. The covenant's security test focuses on availability and cyber defence, asking operators to keep computing running and to work with government on resilience. It does not, according to one detailed reading, ask where the data itself is held, who owns the company, or whose courts can order the contents to be handed over. For a policy built on sovereignty and security, those questions may return in future debates.
For now, though, the message to developers is clear. If you want the grid connection, the planning support, and the government's backing, you must show what the host community gets in return. Parks, transport links, town centre investment, local jobs, apprenticeships, cleaner power, and less water taken from public supplies are no longer extras to be offered in a consultation brochure. Under the covenant, they are part of the deal.
For more technology coverage, see our Technology section, our report on plans approved for an AI data centre in Canterbury, our piece on the data centre debate and electricity and jobs, and our report on Microsoft pulling out of a data centre project. You can also visit the Verity homepage or read about us.
Further reading: the BBC story on data centres and local benefits, the UK government's Data Centre Covenant, Channel News Asia on Healey's grid access incentives, Data Centre Magazine on the covenant's five tests, AI Brief on community tests and grid access, and analysis of the covenant's sovereignty tests.
