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Data centres are increasingly recognised as crucial to AI development and the economy’s wider digital transformation. Accelerating the building of data centres though new “AI Growth Zones” was a key recommendation of the AI Opportunities Action Plan. This also contained an intriguing reference to using these zones to “drive local rejuvenation.” How might this work?

The AI Opportunities Action Plan and data centres

The recently published AI Opportunities Action Plan includes 50 recommendations to support the growth of the UK’s AI sector and accelerate the wider adoption of AI. The Action Plan was led by Matt Clifford, Chair of the Advanced Research and Invention Agency (ARIA), and its recommendations have been endorsed by Government.

One of the themes of the Action Plan is to ensure that the UK has sufficient AI infrastructure, including data centres. The BBC pithily described these as “warehouses full of computer systems.” A fuller definition comes from a techUK report: “physical infrastructure that houses the computing and networking equipment (primarily servers) that businesses use to store, process and share data.”

The Action Plan makes clear the importance of data centres as an underpinning resource for AI. Without access to data centres, AI models cannot be trained. And beyond AI, data centres are required to enable digital elements of the wider economy. The focus of this blog, however, is on the potential local economic impacts of data centres, rather than the UK sovereign compute imperatives that are the focus of the Action Plan.

What are AI Growth Zones?

Recommendation 4 of the Action Plan is for Government to “Establish ‘AI Growth Zones’ (AIGZs) to facilitate the accelerated build out of AI data centres.” AIGZs will receive planning powers and, at least for the first AIGZ, support to form public-private funding partnerships to support the development of data centres for AI applications. Enhanced access to power will also be considered.

Where things get interesting for local economic development is the Action Plan’s statement that “Government can also use AIGZs to drive local rejuvenation, channelling investment into areas with existing energy capacity such as post-industrial towns and coastal Scotland.” The Government’s response to the Action Plan also notes that AIGZs “have the potential to deliver local benefits, including job creation, enhanced digital and energy infrastructure and sustainability initiatives.”

The first AIGZ has been announced as Culham, Oxfordshire. Rather than rejuvenating a post-industrial town, the focus here appears to be on leveraging the “access to significant power and land” which Culham offers (both are prerequisites for large-scale data centres), alongside co-location with a potential end user in the UK Atomic Energy Authority and its fusion energy mission.

Government has committed to setting out a process  to select further AIGZs in Spring this year. This will be of interest to those involved in local economic development across the country. But how much of an opportunity for local economic growth might becoming an AIGZ represent?

What might their immediate impact be?

As with any investment in physical infrastructure, the construction of data centres will create a temporary economic stimulus when the facility is built and fitted out. The ongoing impact will be the direct operational jobs created, the indirect impact of spending in the supply chain, and the induced impact of data centre employees spending their wages in the local economy.

The techUK report assumes 54 direct jobs per data centre, although notes that this will vary by the size of the data centre, with an estimate of 20 jobs for smaller facilities. Two examples help to illustrate the variation. Kao Data is investing £350m in Stockport to build the largest data centre in the North which is expected to support 80 jobs, whilst the £3.75bn proposals from DC01UK for a data centre in Hertfordshire would create 200 jobs (both figures exclude indirect effects). Interestingly, data centre jobs are highly paid with the techUK report quoting an annual salary range of £49k to £129k.

Could AIGZs spark a wider economic impact?

Those salary figures are impressive and the additional jobs will be helpful for local economies. But they are not enough to “drive local rejuvenation” alone. To do this, local areas must be able to attract other complementary investments alongside data centres. The presence of a new data centre may in itself be enough to achieve this. Some companies require low network-latency speeds (i.e. time for data to transit across the network) to facilitate their AI or 5G work. Latency is related to geographic distance and some cutting-edge companies will want to minimise this by locating in close proximity to a data centre.

However, this is not universally true for cutting-edge digital firms, with BCG suggesting that low latency “is becoming less critical for a growing range of AI applications.” And that is not to mention the much larger number of firms in other sectors of the economy that use data centres without requiring physical proximity to them. Local areas should therefore be cautious in their expectations around whether and how building a data centre will lead to the creation of a successful AI or digital cluster with hundreds of well paid, highly productive jobs.

Successful clusters are characterised by having a fully supportive ecosystem. This means access to skilled labour, appropriate premises for innovative businesses, collaboration with leading researchers, access to finance for start-up and scale companies, and wider business support programmes amongst other aspects. Building a data centre alone will only provide one piece of the jigsaw. And if AIGZs are to target areas in need of rejuvenation, it is likely that the other jigsaw pieces will, at least initially, be missing. A (potentially large) set of complementary investments will therefore be required to maximise local economic benefits for post-industrial areas if, as the current information suggests, the ‘core’ AIGZ programme is limited to enabling data centre construction.

Reflections

Data centres, especially the large scale ones envisaged for AIGZs, are land and power hungry. This limits the number of places that are suitable to host them and perhaps explains the Action Plan’s references to post-industrial towns and coastal areas. The former may have large brownfield ex-manufacturing sites with strong connections to the power grid, whilst the latter could, perhaps, benefit from easier access to renewable offshore energy. Other similar spatially-focused interventions progressed by previous Governments such as Investment Zones and Enterprise Zones have been criticised for their potential displacement effects, but this is potentially less of a concern for AIGZs given the smaller number of places capable of easily accommodating large scale data centres.

In working up full details of the AIGZs, Government might want to carefully consider how they can best contribute to local economic growth by linking to other policy actions, providing a broader offer than facilitating data centre development alone. Some of this could be achieved through giving AIGZs priority access to other elements of the Action Plan, notably those recommendations that relate to “training, attracting and retaining the next generation of AI scientists and founders.”

Places considering becoming an AIGZ should also consider what the objectives of their AIGZ would be, and how this relates to their current economic circumstances and priorities. For example, Stockport’s data centre could support activity across Greater Manchester’s ‘key technology family’ of AI, Digital and Advanced Computing, linking particularly to university research and the city region’s growing digital economy. Places should also consider how best to integrate the new data centres into local supply chains and the skills system so that local businesses and people can access the newly created procurement and employment opportunities. And if, as seems almost certain, the number of data centres inside and outside AIGZs will continue to increase, could local areas even aim to specialise in the design and construction of such facilities?

Hosting an AI data centre may also have downsides for particular places. There is an opportunity cost associated with using a large amount of land for a data centre rather than other forms of development with a higher employment density. And given the well documented concerns around AI (including environmental considerations given the energy intensity of data centres), not all local residents can be expected to react positively to the creation of a new data centre in their neighbourhood.

Overall, and to answer our original question, it seems that AIGZs can be an opportunity for local economic growth, but they only will be if they are appropriately complemented by wider supporting initiatives. All of the jigsaw pieces must be in place. If you are trying to put everything together in your place – whether in relation to an AIGZ or more broadly - we’d be happy to discuss Strategy and Action Planning work with you.