UK Budget Introduces Data Center Covenant With Priority Grid Access

UK data centers to receive incentives for community commitments

UK Chancellor John Healey has announced a British Data Center Covenant requiring operators to invest in local communities, create jobs, and protect water supplies.

In return, critical data centers that comply with the covenant will receive priority grid connections and permission to build new on-site power generation while they wait for those connections. Healey announced the measures in his 2026 budget speech.

The government says the covenant is intended to support data center development in Britain, which it considers important to achieving its AI and national security objectives. Healey said the government must “seize the opportunities and guard against the risks.”

“We are already world leaders in AI safety and security, which today’s budget backs with an extra half a billion pounds,” he said. “Built on sovereignty and security, I want to ensure that the British can benefit from the huge potential upsides of AI.”

He added: “Nowhere is the necessary role for the state clearer.”

Operators welcome the covenant

Some UK data center operators responded positively to the announcement.

Gary Watson, managing director of UK operator Stellanor, described the covenant as “the right deal.”

“Grid capacity shapes every decision in our sector, and we can’t keep building data centers and expect the grid and local communities to work around us,” Watson said. “Operators should earn their place, through local jobs and skills, responsible water use, renewable power and genuine engagement with neighbors.”

Watson said the requirements should be meaningful and should account for regional and urban sites, rather than focusing only on the largest campuses. He argued that this would allow sovereign data to remain close to the people and public services that depend on it.

Gary Wojtaszek, executive chairman and interim CEO of Pure Data Centres Group, also welcomed the announcement.

“Today's announcement of a new data center covenant is welcome, particularly the commitment to prioritizing grid connections for critical projects that support communities,” Wojtaszek said.

He added that responsible developers were already creating jobs, protecting water supplies, and supporting local communities. In his view, the framework could recognize those efforts while supporting a UK data center sector able to compete internationally. He also said the company was prepared to help refine the requirements, provide examples, and assess how they would affect planning and grid connections.

Kirsty Harrower, a partner at law firm Norton Rose Fulbright, said the covenant could help “unlock strategically important projects in the UK by accelerating access to grid capacity and the planning process.”

She cautioned that operators would face greater expectations concerning energy and water use, community benefits, and security.

Sovereign data and AI policy

Healey also announced the government’s objective of keeping sovereign data used by public services and the British armed forces within appropriate national control as AI adoption expands.

Mark Boost, CEO of UK sovereign cloud provider Civo, welcomed the announcement and said the UK had “already set out the right principles.”

However, Boost said the policy would be judged by its implementation. He argued that the UK must reduce its dependence on “foreign tech giants” to achieve “true digital sovereignty.”

“It is clear that John Healey wants this public spending to serve as a growth engine for every postcode in Britain,” Boost said. “Digital infrastructure is one of the best ways to achieve this. The UK already has homegrown providers building capacity across the country. It’s now time to back open, sovereign platforms across public services, and commit to buying from UK-owned and operated providers.”

Additional AI funding

Healey also outlined other elements of the UK government’s AI strategy, including a £15 million ($19.9m) AI Challenge Prize. The program is intended to reward the use of AI in public services and encourage “innovative AI” applications that address common problems. Its first award will focus on health issues.

The strategy also includes £23 million ($30.5m) for the AI Economics Institute. The research institution will analyze AI’s economic effects, including its impact on productivity, growth, jobs, and living standards.