As the UK competes with its neighbours for economic recovery and digital transformation, the importance of data centres as the backbone of the modern economy has become undeniable. These data centres are pivotal in powering the technologies that enable everything from cloud computing to artificial intelligence (AI). Despite their critical role in economic growth, the expansion of data centres in the UK has been stunted by energy costs, planning barriers, and bureaucratic delays. Now, the Labour Party, through its election manifesto, is pledging to remove these barriers and fast-track data centre development, setting the stage for a digital-driven future.
Data Centres: The Foundation of a Modern Economy
Data centres are key infrastructure in the UK’s digital economy. According to government projections, the UK’s data centres currently contribute £4.6 billion annually, with expectations that they will generate £41.5 billion and create 678,000 jobs by 2028. These facilities are critical for enabling businesses to handle more compute-intensive workloads, including those driven by the rise of AI and other advanced technologies. However, the demand for data centre space far exceeds the current supply, especially in London, where available capacity is shrinking below 10% vacancy rate, and power availability remains a bottleneck. A CBRE market report released in May 2024 highlighted that demand for colocation capacity is increasing as more AI-ready data centres are needed to meet this growing demand.
The Labour Party’s recognition of the importance of data centres comes at a crucial time. Recognizing this, the UK government recently reclassified data centres as Critical National Infrastructure (CNI). This move highlights how essential these facilities are for the country’s economic stability and digital security. As NCI, data centres now receive enhanced protection against cyber threats and are viewed as indispensable to the nation’s operations, driving both public and private investment. Further, in its Election manifesto, the party pledged to reclassify data centres as nationally significant infrastructure projects (NSIPs). This change, usually reserved for large-scale developments like power stations and transport networks, would significantly accelerate the approval process for data centre projects by removing local authorities from the equation. Instead, developers would submit their plans to the Planning Inspectorate, which would then refer the final decision to the Secretary of State. 
This is a substantial shift from the current system, where local councils are often the final arbiters, a process that can result in lengthy delays and rejections. For instance, the £2.5 billion hyperscale data centre planned for Iver, Buckinghamshire, was blocked in 2023 due to local opposition, despite its significant economic potential. Labour’s commitment to prioritising such projects reflects its broader strategy to stimulate economic growth by expanding digital infrastructure.
Barriers to Data Centre Development: Energy and Planning
While the Labour Party’s reforms aim to fast-track development, the challenges facing data centre projects extend beyond planning regulations. Energy costs are one of the most significant hurdles for developers. Data centres are among the most energy-intensive facilities, and the UK’s rising electricity prices pose a significant barrier to their expansion. Industrial electricity costs in the UK have risen sharply, more than doubling between 2004 and 2021, and they remain upto 150% higher for large commercial users than those in France, where nuclear energy accounts for 70% of electricity generation.
Furthermore, the UK generates only 4,800 kilowatt-hours per capita annually, compared to 7,300 kilowatt-hours in France and over 12,000 kilowatt-hours in the United States. This electricity shortage is a critical issue for data centres, which require a constant and reliable power supply. Without significant investment in the UK’s energy infrastructure, particularly in renewable energy and nuclear power, developers will struggle to meet the demand for new data centres.
In response, some data centre operators are considering innovative approaches to energy consumption, such as building private wire systems that connect directly to renewable power sources, bypassing the National Grid. However, as noted by industry leaders like Cathal Griffin, Chief Revenue Officer of Asanti Datacentres, these solutions are costly and time-consuming to implement. Furthermore, the UK’s four-year wait time for connecting new facilities to the grid is a significant deterrent for developers, further exacerbating the challenge of building new data centres.
Labour’s Manifesto: A Bold Step Toward Growth
The Labour Party’s pledge to prioritise data centre developments as a “national priority” is a recognition of the sector’s potential to drive economic growth. Shadow Secretary of State for Science, Innovation, and Technology, Peter Kyle, has made it clear that the party is committed to sweeping reforms of the planning system, ensuring data centres can be built without the delays that currently plague the process. In a recent interview, Kyle pointed out that a single data centre could generate half a billion pounds for the economy each year, underlining the enormous economic potential that these projects hold.
By reclassifying data centres as NSIPs, Labour would enable projects to bypass local council objections, which often derail developments, as seen in the Buckinghamshire example. Moreover, Labour’s manifesto highlights its intention to build 1.5 million homes and new innovation labs, positioning the party as committed to both the housing and digital infrastructure needs of the country. Kyle stressed that a Labour government would work in partnership with the private sector to assess the nation’s infrastructure needs and ensure that businesses have the digital infrastructure necessary to compete globally.
The Environmental Challenge: Balancing Growth with Sustainability
While fast-tracking data centre development is crucial for economic growth, industry stakeholders caution that this must not come at the expense of the environment. Mark Yeeles, Vice President of Schneider Electric’s Secure Power Division, emphasises the need for new data centres to be built in areas with abundant renewable energy. Moreover, Yeeles and other industry experts advocate for data centres to benefit local communities by reusing the waste heat they generate or by creating job opportunities.
In addition, Graeme Malcolm OBE, CEO of M Squared, highlights the need to ensure that data centres are sustainable as they continue to grow. Labour’s pledge to build new data centres quickly must be paired with strategies to increase energy efficiency and minimise environmental impact, especially as the demand for AI and other computationally intensive technologies grows.
Conclusion: A Path Forward for the UK’s Digital Economy
As the UK looks to position itself as a leader in the global digital economy, data centres are central to this strategy. Labour’s proposal to reclassify data centres as nationally significant infrastructure could transform the sector, allowing projects to proceed faster and more smoothly by bypassing local planning hurdles. Given that the UK is forecast to see a 41.5 billion increase in data centre revenues by 2028, with 678,000 new jobs created in the tech sector, the stakes could not be higher.
However, challenges remain. Energy costs and infrastructure delays are significant hurdles that must be addressed if the UK is to fully realise the benefits of a rapidly growing data centre market. Furthermore, ensuring that environmental sustainability is not sacrificed in the name of growth will be critical.
By removing planning barriers, investing in renewable energy, and fostering collaboration between the government and private sector, the UK can unlock its full potential as a hub for digital innovation, creating jobs, boosting the economy, and ensuring that it remains competitive on the world stage for years to come. The Labour Party’s commitment to making data centres a national priority is a step in the right direction, but the road to success will require a careful balancing act between growth and sustainability.
