Budget 2026: Healey unveils data centre deal in bid to keep Britain’s AI data in the UK

UK Chancellor John Healey announced the British Data Centre Covenant in Wednesday's Budget 2026, offering data centre developers priority access to Britain's electricity grid — including permission to build on-site power generation while awaiting a connection — in exchange for investment in local jobs, communities and water supplies. Healey also committed an additional £140m to Britain's Sovereign AI Unit and confirmed £500m more for AI safety and security, saying "When the NHS uses AI to treat patients, we want that data here." The deal follows Microsoft's withdrawal last week from a planned Essex AI data centre with London-based Nscale, which would have been Britain's largest, after grid capacity problems blocked power in time for its 2026 launch.

Budget 2026: Healey unveils data centre deal in bid to keep Britain’s AI data in the UK John Healey has unveiled a new deal offering data centre developers priority access to Britain’s electricity grid in exchange for investment in jobs and environmental protections. Announcing the British Data Centre Covenant in Wednesday’s Budget, Healey said the government would impose strict conditions on developers while helping critical facilities secure the power needed to support Britain’s growing AI industry. “To ensure our most sensitive data stays under British control, I am setting out a new deal for datacentres in the UK,” he told MPs. “When the NHS uses AI to treat patients, we want that data here. When our Armed Forces use AI to keep us safe, we want that data here”. Under the covenant, developers will be required to invest in local communities, create jobs and protect local water supplies. In return, critical data centres will receive the grid connections they need and, where necessary, permission to build on-site power generation while waiting for a connection. The announcement comes as electricity shortages threaten to derail billions of pounds of planned investment in British AI infrastructure. Last week, Microsoft withdrew from plans to develop what would have been Britain’s largest AI data centre alongside London-based Nscale https://www.cityam.com/microsoft-pulls-out-of-nscale-deal-for-uks-largest-ai-data-centre/ , after grid capacity problems prevented the Essex site from securing power in time for its planned 2026 launch. The government is also facing growing opposition to data centre construction over concerns about energy consumption and the impact on local communities. “Linking grid access to what data centres give back locally is the right deal”, said Gary Watson, managing director at data centre firm Stellanor. “The tests need to be meaningful, and they need to recognise regional and urban sites, not just the largest campuses, so sovereign data can sit close to the people and public services that rely on it”. £140m boost for sovereign AI Healey also announced another £140m for Britain’s Sovereign AI Unit, which will channel government investment into strategically important British AI companies. The funding forms part of the government’s efforts to reduce reliance on foreign technology suppliers and retain greater control over critical AI infrastructure. “Nowhere is the necessary role for the state clearer than in AI,” Healey said, pledging to forge a British approach based on “security” and “sovereignty”. He also confirmed an additional £500m for AI safety and security, building on investments announced ahead of the Budget in cyber defence, biosecurity and the AI Security Institute. However, industry figures have warned that funding British AI firms will achieve little unless government procurement also shifts towards domestic suppliers. Dr Maria Dunford, chief executive of British health technology firm Lifebit, welcomed the additional sovereign AI funding but said public contracts continued to favour overseas tech giants. “Funding is only the first step, and procurement needs to follow”, she said. “Until it does, the biggest AI contracts in areas like the NHS and defence will keep going to the same overseas incumbents, who get harder to replace the longer they stay”.