The UK needs a strategy to meet growing demand for data centres or risk losing its advantage in the race to develop artificial intelligence (AI), one of the sector’s largest players has told Sky News.
Data centres – warehouses housing processors that power cloud computing – are central to the digital economy. They provide the power, connections and security required for the vast amount of processing power on which everything from personal device browsing to AI learning relies.
The UK is currently Europe’s largest data hub, with more than 500 data centres, the majority in the South East.
Slough in west London is the industry’s historic base, largely because of its proximity to both transatlantic connectors and the City of London, whose financial services and banks were initially the biggest customers for computation power.
Last month the government classified data centres as ‘critical national infrastructure’, putting them on a par with power stations and railways but the industry says a broader strategy is required as it moves to meet the growing demand driven by power-hungry AI chips.
High land prices, competition for grid connections and the resistance of local residents have put a premium on further expansion in the southeast, leading some companies to look beyond the industry’s traditional base.
Kao Data, which has an expanding campus in Harlow, Essex, is among those looking to beyond the South East, and broke ground this week on a £350m development at Stockport in Greater Manchester.
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Spencer Lamb, Kao’s chief commercial officer, said the UK industry is at a turning point.
“We are under pressure to be able to provide capacity and create data centre buildings to fuel the demand from AI, that’s the challenge. Whether we as a country provide the environment for it is the big question mark,” he said.
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“If we want to be part of the global AI opportunity we need to deploy these resources in locations that are suitable, sustainable and have the opportunity for growth. We didn’t really have a plan 10 years ago when cloud computing started, and by accident we’ve ended up where we are today which is in effect consuming all the power into the west of London.
“Now is the time to come up with a UK-wide data centre strategy and start deploying these facilities in other parts of the country, distributing them fairly.”
Kao’s expansion in Manchester exploits an existing industrial site – it will replace a concrete factory – and the availability of a grid connection, fundamental in a notoriously power-hungry industry in which a facility’s size is measured in megawatts not square feet. A 100MW data centre consumes the same amount of electricity as 100,000 homes, a town roughly the size of Ipswich.
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Mr Lamb said it is a model the government should heed. “A realistic opportunity would be to allocate two or three locations across the UK which have access to power as data centre planning zones, where the local authorities understand what a data centre is, are welcoming and we can develop these buildings simply and swiftly and remove a lot of the bureaucracy that exists.”
The Stockport site also has the backing of the mayor of Greater Manchester, Andy Burnham, who sees data as part of the jigsaw of infrastructure required to boost economic development in the North West.
“This is now critical national infrastructure as designated by the new government, and it makes sense that all of that capacity is not just clustered in one part of the country. We now need to see the emergence of a large-scale data centre industry in the north of England,” Mr Lamb said.
The challenge of further expansion in the South East is evident on the outskirts of the expanding village of Abbotts Langley in Hertfordshire, where a patch of green belt has become a frontline in the debate over data centres and the new government’s commitment to growth.
The 31-hectare plot, once grazed by cows that produced milk for the nearby Ovaltine factory, has been bought by property developer Greystoke Land and earmarked for a data centre.
The local planning authority, Three Rivers Council, rejected it because of the loss of green belt, but on her first day in office, Angela Rayner, the housing minister, “called in” the application, beginning a process expected to end with her over-ruling the local authority.
Labour promised to back development in government but that does not make it popular. As well as concerns over the environmental impact of a data centre, residents believe the development will remove the only buffer between the village and the motorway.
Stephen Giles-Medhurst, Liberal Democrat leader of Three Rivers Council, 76% of which is made up of green belt, told Sky News communities need something in return.
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“I’m not a total nimby, I can see which way the wind is blowing, but we will make the best case possible to say no to this development because it is an inappropriate site, which causes very high harm to the green belt.
“Ironically we do have some brownfield sites that landowners won’t release, and we can’t compulsory purchase, let’s do something about that and bring them back into public ownership.
“But if at the end of the day we’re overruled then we will be demanding the infrastructure that’s for Abbots Langley and Three Rivers.”
A Ministry for Housing, Communities and Local Government spokesperson said: “Our reforms to the planning system will make it easier to build the key infrastructure this country needs – such as data centres – securing our economic future and giving businesses the confidence to invest.
“Development on the green belt will only be allowed where there is a real need and will not come at the expense of the environment.”
Business leaders expressed frustration with ministers on Monday amid a growing budget backlash that bosses said would trigger an “avalanche of costs” and leave them with no choice but to slash investment and increase prices.
Sky News has learnt that bosses of large retail and hospitality companies and trade associations told Jonathan Reynolds, the business secretary, that last week’s budget risked damaging consumer confidence and exacerbating challenges facing the UK economy.
Among the dozens of companies represented on the call are said to have been Burger King UK, Fuller Smith & Turner, Greene King, Kingfisher and the supermarket chain Morrisons.
Mr Reynolds is said to have acknowledged that Rachel Reeves‘s inaugural fiscal statement had “asked a lot” of British business, with James Murray, the financial secretary to the Treasury, understood to have described it as “a once-in-a-generation budget”, according to several people briefed on the call.
One insider said that Nick Mackenzie, the chief executive of Greene King, had highlighted that the increase in employers’ national insurance (NI) contributions would cause “a £20m shock” to the company, while Fullers is understood to have warned that it would be forced to halve annual investment from £60m to £30m as a result of increased cost pressures.
Rami Baitieh, the Morrisons chief executive, told Mr Reynolds that the budget had exacerbated “an avalanche of costs” for businesses next year, and asked what the government could do to mitigate them.
Sources added that the CBI, the employers’ group, said its impact would be “severe”, while the British Beer & Pub Association added that there was now a disincentive to invest and flagged “a tsunami” of higher costs.
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2:45
How will the budget affect businesses?
The range of comments on the call with ministers underlines the scale of discontent in the private sector about Labour’s first budget for nearly 15 years.
Only a small number of interventions during the discussion are said to have been in support of measures announced last week, with the Federation of Small Businesses understood to have praised the doubling of the employment allowance, which would see many of the smallest employers having their NI bills cut by £2,000.
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The Department for Business and Trade has been contacted for comment, while none of the companies contacted by Sky News would comment.
Two of Britain’s biggest food retailers will this week face pressure to publicly disclose whether they expect a fresh spike in prices next year as the industry grapples with huge tax hikes imposed in last week’s budget.
Sky News understands that Marks & Spencer (M&S), which will unveil half-year earnings on Wednesday, and J Sainsbury, which reports interim results the following day, are collectively facing an additional bill of close to £200m as a result of changes to employers’ national insurance contributions (NICs) announced by Rachel Reeves, the chancellor.
Industry sources said the pressure on pricing would be “intense” given the thin margins on which the big supermarkets already operate.
“Food price increases from next April are inevitable,” said one.
The warning comes a day after Ms Reeves told Sky News that “businesses will now have to make a choice, whether they will absorb that through efficiency and productivity gains, whether it will be through lower profits or perhaps through lower wage growth”.
Pointedly, she did not highlight the prospect of higher prices at the tills, with some retailers now weighing whether to explicitly blame the government for impending price increases – a move which will trigger renewed inflation in the UK economy.
The grocery industry is expected to be among the hardest-hit by the changes to employer NICs, particularly after the chancellor slashed the threshold at which businesses become liable for it to just £5,000.
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Tens of thousands of people employed part-time in the sector earn between that sum and the current threshold of £9,100.
The first major retailer to report financial results since the budget will be Primark’s parent, Associated British Foods (ABF), on Tuesday.
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Insiders downplayed the risks of price hikes from Primark given its track record of absorbing inflationary pressures without passing them on to consumers.
ABF’s additional employer NICs bill is expected to be in the region of £25m, according to one analyst.
Overall, the retail sector could end up paying billions of pounds of additional tax given the scale of its workforce.
Ms Reeves has vowed to raise £25bn extra annually from the changes to employer NICs.
In addition to that, the rise in the national living wage will add a further burden to the financial pressures facing the retail industry.
Prior to the budget, Stuart Machin, the M&S chief executive, urged the chancellor not to increase taxes on it, calling them “a short-term, easy fix”.
“When I hear about plans to increase national insurance, a tax with no link to profit which hits bigger employers like us and our smaller suppliers, I’m concerned.
“The chancellor was right in the past to call national insurance a tax on workers.”
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Jonathan Reynolds, the business secretary, will hold talks with British business leaders later on Monday about the impact of the budget.
A number of executives will be given the opportunity to ask questions on a call in which more than 100 companies are expected to be represented, although one boss who is critical of many of the budget measures said they were likely to be prevented from voicing their concerns publicly on the call.
The former Conservative chancellor Nadhim Zahawi is in talks to smooth the path to a takeover of The Daily Telegraph being led by the New York-based media investor Dovid Efune.
Sky News has learnt that Mr Zahawi has been working for several weeks with LionTree, Mr Efune’s investment banking adviser, on the deal, which is expected to be worth in the region of £550m.
City sources said on Monday that Mr Efune, proprietor of the New York Sun, was exploring securing a portion of funding for the takeover from Sir Mohamed Mansour, the former Tory treasurer.
In September, Sky News revealed that Sir Mohamed had been approached to provide as much as £150m to a standalone bid for the Telegraph titles that was being spearheaded by Mr Zahawi.
Mr Efune subsequently secured a period of exclusivity to finalise a deal before the end of November, and is now lining up financial backers to help clinch the deal, aided by the former Tory chancellor.
If completed, the transaction will crystallise an unlikely profit for RedBird IMI, the Abu Dhabi-backed vehicle which paid £600m to acquire a call option that was intended to convert into ownership of the Telegraph newspapers and The Spectator magazine.
One source said that depending on the final structuring of the deal, it could be worth as much as £575m
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The Spectator was recently sold for £100m to Sir Paul Marshall, the hedge fund billionaire, who has installed Michael Gove, the former cabinet minister, as its editor.
Insiders said that Mr Zahawi was likely to be handed an ongoing role at the Telegraph if the bid from Mr Efune was successful.
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The former chancellor, education secretary and vaccines minister has been involved in the Telegraph process in various guises, initially helping broker a deal with RedBird IMI before assembling his own offer.
He has close connections to many of the Gulf-based figures involved in the process, including Sultan Ahmed al-Jaber, chairman of the bidding vehicle.
Mr Zahawi has also since been named chairman of Very Group, the online retailer owned by the Barclay family which controlled the Telegraph for two decades, and which is now part-funded by IMI.
The UAE-based IMI, which is controlled by the UAE’s deputy prime minister and ultimate owner of Manchester City Football Club, Sheikh Mansour bin Zayed Al Nahyan, extended a further £600m to the Barclays to pay off a loan owed to Lloyds Banking Group, with the balance secured against other family assets.
Spokesmen for Mr Efune, Sir Mohamed and RedBird IMI all declined to comment on Monday, while Mr Zahawi could not be reached for comment.
The former minister has said little publicly about his interest in a role at the Telegraph, although he did tell Sky News presenter Sophy Ridge in September that it “would be an incredible honour for me, a real privilege if I were ever to… chair the Telegraph [or] be involved with [it]”.
Sir Mohamed, who has donated millions of pounds to the Tories, was knighted earlier this year – a move which was lambasted by critics of the honours system.
His family office, Man Capital, is the second-biggest shareholder in the coffee shop chain Caffe Nero, while he owns San Diego FC, a new Major League Soccer franchise which will make its debut next year.
The London-based billionaire was the Tories’ senior treasurer from late 2022 until this year’s general election.
Mr Efune’s bid has raised the extraordinary possibility of a return to the British newspaper group for Conrad Black, its former proprietor, Sky News reported earlier in the autumn.
Lord Black, who ceased to be a member of the House of Lords earlier this year on the grounds of his non-attendance, writes regular opinion pieces for the digital title and was a founding director of its publisher.
For decades, Lord Black was a colossal figure in the newspaper industry both in Britain and beyond, overseeing titles at Hollinger International which included the Telegraph, The Jerusalem Post and the Chicago Sun-Times.
He acquired an initial stake in the Telegraph group in 1985, before gaining full control later that year.
After being convicted in 2007 of fraud and obstruction of justice, he spent three-and-a-half years in prison, and in 2019 was pardoned by President Trump.
Other bidders for the Telegraph included National World, the London-listed vehicle headed by former Mirror newspapers chief David Montgomery, and Lord Saatchi, the former advertising mogul, who offered £350m.
Lord Rothermere, the Daily Mail proprietor, pulled out of the bidding earlier in the summer amid concerns that he would be blocked on competition grounds.
The Telegraph auction is being run by Raine Group and Robey Warshaw, the advisers to the Abu Dhabi-backed entity which was thwarted in its efforts to buy the media titles by a change in ownership law.