What does the Budget offer the UK’s AI sector?

The UK’s AI sector took centre stage in Wednesday’s 2026 Budget, with a new “Data Centre Covenant”, £700 million in funding initiatives for AI projects and the continued rollout of AI across public services.

The Data Centre Covenant sets five tests that data centres must meet to qualify for enhanced government support:

• Energy costs: cover the energy costs they create and support grid resilience, without passing those costs to households or other businesses.
• Local communities: agree a Local Benefit Plan providing substantial investment, proportionate to the development’s size.
• Environmental standards: protect nature, minimise water use, publish annual energy and water consumption reports and, where practical, reuse waste heat.
• Jobs and industry: create local jobs, apprenticeships and training opportunities, prioritise UK suppliers and support British AI hardware.
• National security: provide secure, reliable computing capacity and strengthen protection against cyber and other threats.

In return, the government promises to help “strategic” sites secure power sooner through the following “covenants”:

• Grid access: reserve future grid capacity and reallocate connections freed up when other projects leave the waitlist.
• Additional capacity: work with the electricity system operator and network companies to identify locations where power could be available before 2030.
• Earlier connections: where needed, use statutory powers to facilitate the transfer of existing pre-2030 data centre connection contracts to strategically important projects.
• Temporary power: allow temporary onsite generation for exceptionally strategic projects where other routes cannot deliver power in time, subject to strict conditions designed to protect the reliability of energy supplies.

Key Budget funding announcements include:

• National Agentic Security Unit: £40 million to detect and respond to security incidents involving AI agents.
• AI procurement: £80 million for a “Sovereign AI” R&D procurement scheme to commission AI solutions for healthcare, security and defence.
• AI Pathfinder Fund: £60 million to help address government barriers to AI adoption (with specific initiatives yet to be set out).

Shortly before Budget Day, the government also announced several initiatives, including:

AI security:

• AI biosecurity: £165 million for a new National AI Biosecurity Initiative to help detect and respond to biological threats, including a £100 million AI Biosecurity Lab, supported by up to £200 million in AI model credits from OpenAI and Anthropic and partnerships with Google DeepMind and Basecamp Research.
• AI security: an additional £120 million for the AI Security Institute to test advanced AI systems, assess their risks and develop technical standards.
• National Cyber Shield: £60 million to strengthen the UK’s cyber defences using AI, including a £25 million challenge fund for innovators.
• Cyber vulnerability detection: £70 million for a new National Exposure and Real-Time Vulnerability (NERV) Centre to identify cyber vulnerabilities using AI.

British tech investment:

• Sovereign AI Fund: a further £60 million for the recently created “Sovereign AI Fund” to invest in promising British AI companies and help them grow in the UK, with a key focus on robotics and autonomous systems.
• Chip design: £18 million for a new UK Advanced Chip Design Academy to develop specialist skills and support British semiconductor manufacturing.

“Growth in every postcode”:

• Local AI partnerships: £30 million to bring councils, businesses and education providers together to help firms adopt AI, develop workers’ skills and improve public services. This initiative will start in Yorkshire.
• Chancellor’s AI Challenge Prize: £15 million for a competition supporting AI solutions to public service challenges. The first will focus on the NHS, with a top award of up to £2.5 million confirmed in the Budget.
• AI Economics Institute: an additional £23 million over three years to examine AI’s effects on productivity, growth, jobs and living standards.
• Cyber security skills: investment in a new AI Cyber Security Centre of Excellence in Manchester to train government cyber and AI specialists.

The Budget also confirmed the rollout of AI across several public services. These include ‘Ask HMRC’, which will help customers navigate the tax system; ‘Justice Transcribe’, which will reduce probation officers’ administrative workload; and plans to make ‘PlanAssist’ available to all councils in England by the end of 2027, helping to speed up planning decisions.

Together, these measures—and Healey’s focus on AI in his Budget speech—underline the Government’s commitment to attracting AI investment and keeping the UK competitive with the world’s leading technology economies.