What can Governments do to Make Data Centres Work for their Countries?
With the boom in global data centres creating one of the largest flows of private capital in modern economic history, we look at what governments can do to maximise the benefits of Data centre investment while protecting their nation’s interests.
Data centre investment, when structured correctly, is one of the most tax-productive forms of economic development available to a modern government. It offers high capital values, low demands on public services and decades of stable revenue.
Governments need to frame policies that balance attracting investment without letting potential financial benefits drain away to offshore (often American) private investors.
The Challenge: Lure in investment, then capture potential benefits
Hyperscale data centres need land space, water and reliable power sources. Developers are therefore looking for suitable areas based on:
- land cost,
- energy availability,
- grid reliability,
- planning speed
- a beneficial tax situation.
Investment is highly mobile and a site may be bypassed in favour of another that offers a better deal.
The challenge is to offer enough to lure in the deal without giving away too much future revenue.
Governmental Options
1 Planning and permits
Make it quick for investors’ applications to achieve planning consent and permits.
In the UK, in September 2024, the government designated data centres ‘Critical National Infrastructure’.
In 2025, the Planning and Infrastructure Act was designed to cut time-to-power by up to five years on the largest schemes. It did this by enabling large-scale data centres to use the Development Consent Order system.
These measures were intended to give the UK an edge over slower-moving competitors by offering certainty and speed, perhaps to the despair of local people.
2 Land policy
Governments that can offer large, serviced, grid-connected sites, particularly former industrial or energy-related sites with infrastructure in place – cut development costs and time attractively. This offers a quicker return than individual developers having to work through complex land negotiations etc.
3 Energy Infrastructure Investment
Grid connectivity is vital. Governments that invest in grid capacity, or require grid operators to prioritise data centre connections create an advantage. In the UK there are some areas where the queue for grid connections runs to years which is seeing potential data centre investment move to Scotland and the North East (for example, the Cambois campus at Blyth which spans 5.8 million square feet and has connectivity to offshore wind power).
4 Tax Incentives
The vital negotiation is to ensure the incentive is tied to a measurable commitment so incentives are earned, rather than given away.
The most common forms of tax incentive involve benefits conditional upon the following:
- Computing equipment
- Property tax abatement
- Job creation credits
Measurable commitments include:
- Hiring of local people
- Contribution to apprenticeship programmes
- Energy efficiency standards
- Usage of renewable energy.
For example, to qualify for its sales tax exemption, the state of Virginia requires a minimum $150 million capital investment and the creation of 50 jobs at wages at least 150% of the local average. Michigan sets green building requirements, while Illinois requires $250 million investment and 20 jobs within 60 months.
Duration of benefits
Incentives should have a time limit. Most American states agree a period of 10-20 years to ensure tax incentives can be phased out once the facility is up and running.
Tax on Property, land and computing equipment
These potentially provide governments with substantial ongoing revenue. A property tax that incorporates the value of data storage infrastructure is often the largest source of tax income.
5 Benefits Beyond Tax
There are other opportunities for governments beyond tax revenue.
- Investment in Skills and Workforce
Governments should make commitments to local communities a condition of planning consent. This has long term benefits and is relatively inexpensive. For example, Amazon has partnered with educational institutions in several US states to create STEM programmes. Other options would be to contribute to apprenticeships in electrical engineering, networking and facilities management.
- Leverage regarding renewable energy
Make planning approval or tax benefits conditional upon specific green energy targets.
In Torrington, the application to build a Data Centre goes hand-in-hand with the development of a BESS fuelled by offshore wind power (and potentially, solar power from Morocco). At Heathrow, the commercial incentive based on green energy has led the Tritax Big Box REIT to develop a data centre partnered with a renewable energy generator specifically to secure quicker grid connectivity.
- Heat Recovery
In several Scandinavian cities, including Stockholm and Helsinki, data centre operators are required to feed waste heat directly into local heating networks. This transforms an environmental liability into an infrastructure benefit with no additional cost to the government.
- Section 106: Community Contribution
The UK planning system, under Section 106, can require developers to contribute to local infrastructure as a condition of consent. For example, in Newham, a data centre project committed £4 million to a local data economy programme.
Conclusion
Governments should be ambitious, forward-thinking – and systematic in quantifying and extracting contributions. These should not only fund skills, broadband, public transport and local regeneration, but could also go some way to mitigate the heartbreak of those whose beloved landscape (and property value) is decimated by a hyperscale facility.
At all costs, they should avoid falling into the trap of offering more and more incentives to lure in investment and give away huge potential benefits to the country and to the community.