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

In return for compliance, critical data centers will get priority grid connections and permission to build new on-site power generation while they wait, Healey said in his 2026 budget speech, delivered today.

According to the chancellor, the covenant will support data center development in Britain, which is vital for the government to achieve its AI and national security goals.

He 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 added. “Built on sovereignty and security, I want to ensure that the British can benefit from the huge potential upsides of AI.”

“Nowhere is the necessary role for the state clearer.”

Some UK data center operators have already responded positively to the news.

Gary Watson, managing director of UK operator Stellanor, described the data center 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,” he explained. “Operators should earn their place, through local jobs and skills, responsible water use, renewable power and genuine engagement with neighbors.”

Watson concluded: “The tests need to be meaningful, and they need to recognize 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.”

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

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

"Responsible developers are already investing in creating jobs, protecting water supplies, and supporting local communities – we welcome a framework that will recognize this work while helping to foster a thriving UK data center sector that can compete on the world stage. We stand ready to help refine requirements, provide tangible examples and better understand how the requirements will influence planning and grid connections."

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

However, she noted that there will now be "greater expectations around energy and water use, community benefits, and security."

The chancellor also announced the government's aim to keep sovereign data used by public services and the British armed forces as AI continues to proliferate.

Mark Boost, CEO of UK sovereign cloud provider Civo, welcomed this news, stating that the UK has “already set out the right principles.”

However, Boost said the real test for the government’s policy is yet to come, and argued that the UK must decouple itself from “foreign tech giants” to achieve “true digital sovereignty.”

Boost added: “It is clear that John Healey wants this public spending to serve as a growth engine for every postcode in Britain. 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.”

During the statement, Healey also touched on other elements of the UK government’s AI strategy, such as the government’s £15 million ($19.9m) AI Challenge Prize, which is designed to reward use of AI in public services and promote “innovative AI” that fixes common problems; the first award will focus on health issues.

The government’s AI strategy also sets out £23m ($30.5m) in funding for the AI Economics Institute, a research institution aimed at analyzing the economic impacts of AI, including effects on productivity, growth, jobs, and living standards.