Data centres and ESG

Welcome to the latest episode of Gowling WLG's Listen Up podcast where we look at a range of topics trending in the legal and commercial landscapes.

Jocelyn Paulley: Hello, my name is Jocelyn Paulley, I am a partner at Gowling WLG, and I lead our firm's Data Centre Sector practice. I am here talking today with Ben Stansfield who is a partner leading our sustainability practice and we are going to be talking today about the headlines in the past couple of days that Angela Raynor is calling in two data centre appeals for Buckinghamshire and Hertfordshire that have been rejected by the local council planners there and she is going to call in those appeals.

So, Ben, can you explain for us what is 'call-in'?

Ben Stansfield: Yes sure, so essentially the Secretary of State has got powers under the Town & Country Planning Act 1990 to both call in and recover planning appeals. So the call-in is where the Secretary of State issues a direction to a local planning authority, so in your borough council or your shire council, and so before you make that decision on the planning application whether to grant the permission or refuse the application, send it my way because I am going to determine it, so that is call-in. And then you have recovery, which is where the developer has submitted an application for planning permission, it has been refused by the local planning authority for whatever reason, and then the Secretary of State can recover the appeal. So, you still might have a public enquiry but instead of the planning inspector determining the appeal they make a recommendation in a report that goes to the Secretary of State to determine herself.

Jocelyn: Why would the Secretary of State want to be doing this?

Ben: They use it fairly sparingly, historically, I mean who knows what the new government will do, but it is generally where there has been a conflict between national policy and local policy. So essentially, where maybe the local councillors who are determining the application might not see a bigger picture. In fact, in 2012 one of the earlier conservative governments issued a ministerial statement which set out some of the criteria they would use in deciding whether or not to call something in, and I will just quickly run those for you.

So, if a decision with conflicts with national policies on important matters, so for example those policies might not yet have made paper, they might just have been a manifesto, it might be just be the government's latest thinking, or if a decision might have significant long-term impacts on the economic growth and meeting housing needs for example. So again, there might be some really good job news or a great big investment and so those issues perhaps are not captured by the local authority or are not fully understood. They might have significant effects beyond the local locality so again it is local authorities taking perhaps a too parochial view and not a national view. There are other criteria around architecture, urban design, national security and what have you. So, I think it is that economic benefit, the economic growth argument which the government is looking at here.

Jocelyn: Is that going to be controversial as between the local planning authorities and central government having those decisions which they had already made and considered and looked at taken away from them?

Ben: A classic lawyers answer I am afraid, it depends. I mean yes obviously. Local authorities like to determine what is going to be built and operated in their locality. But if it is controversial, if it is a thorny issue that the community is really objecting to, actually sometimes it helps a local authority counsellor to have that decision taken off them so that come election time they can be blaming somebody else.

Jocelyn: Interesting. Where do you think the new government are going to go with this?

Ben: So, it is really interesting. It came on our radar because of the speech from the Chancellor, the Head of the Treasury. Economic arguments are absolutely central in the first couple of days of the new government. So, that is really interesting and I think it is probably a sign that the government is going to consider data centre development, essential critical infrastructure.

It is likely to be an industry that the government is really looking to support, focusing on economic arguments at the heart of planning, and according to press reports, there are two projects really large data centres. The first is in Buckinghamshire and that is 700,000 square feet, which is the Court Lane Industrial Estate, and the other one is in Hertfordshire - so both really close to London - that was rejected by the local authority in January, and that was to build 900,000 square feet, and that was in the greenbelt. And to put the size in context people who are familiar with our London office, 4 More London, that is about 185,000 square feet, so these are really big projects, three or four times bigger than our office.

Jocelyn: Where is the national policy currently around planning policy for data centres? Clearly this will be backward looking as to what it has been to date and what the previous government's view was, but given the indications and labour manifesto and these early indications from the Secretary of State, what do you think might be happening to the current policy?

Ben: So the NPPF, the National Planning Policy Framework, was last updated quite recently - December 2023, it was around Christmas time. And it does not really refer to data centres explicitly but planning nerds can go to paragraph 85, and that is essentially one of the instructions to planning authorities in determining applications. And it says something like significant weight should be placed by the local authority on the need to support economic growth and productivity and you have got to think about local business needs. So again, local business needs rather than national and the wider opportunities for development. And they say this is particularly important where Britain wants to be a global leader in driving innovation and that takes you to a footnote which references the most up-to-date industrial strategy, which actually is 2017, and that says look we are trying to make the UK a leader in artificial intelligence, in big data, clean growth and future mobility, catering for an ageing society. So, that is the only reference to essentially data centres in the current NPPF, but we know that planning and housing and those kinds of issues and green belt were central to the campaign. So, we are promised a new NPPF by the end of July, almost certainly there will be reference to data centres in there. Obviously, the headlines will be around more housing and also this green belt and grey belt. So, at the moment we have green belt around a lot of our urban locations designed to restrict urban sprawl so that you still have the green buffers between towns and cities, and the planning policy says you have to have a very special circumstances if you want to build on the green belt and there is an all manner of argument amongst lawyers and planning consultants and what have you as to what very special circumstances are. But we are getting applications for data centres refused on green belt grounds and so we are likely to see, and I have already talked, about something called grey belt. So they are going to be looking at green belt and saying look, if it is really good at creating openness, if it is you know quite natured, biodiverse then we will keep it. But if it is not really adding to the purposes of green belt then maybe we will release it, have grey belt, and certain industries can be moving in there because remember green belt is often near urban areas so sometimes the most sustainable locations for building projects.

Jocelyn: I believe the Labour Party manifesto does actually pick up on data centres specifically when it is talking about growth and industrial strategy, so do you think that is going to come through and be reflected in the new National Planning Policy Framework?

Ben: Yes, so the Labour Party manifesto does talk about data centres, it does not talk about them a great deal but it says something like we are going to remove planning barriers for data centres, so almost certainly it will be in the NPPF. I suspect the NPPF has already been written and is ready to go. I suspect because our industrial strategy is what seven years old, that is going to be updated too. So yes, I think come the end of the July we will know what the future looks like.

So, Joss, what do you think this means for the data centre sector in the UK?

Jocelyn: I think there is a really positive sign that government are taking interest in it from a policy point view and seeing it as a growth prospect, in their manifesto it does link the two, they talk about boosting growth through reforming the planning system to allow more infrastructure projects, if we accept that data centres are at the heart of a lot of digital infrastructure in this country. The UK already has the largest data centre market in Europe and demand for that is still growing quarter-on-quarter, year-on-year and there is evidence out there in papers like Tech UK's report which is a little bit old now from 2020 which has evidence saying that data centres underpin an internet economy contributing over 16% of domestic output, 10% of employment, and 24% of total UK export, so really good statistics to demonstrate how this sector can support the UK in a growth agenda. So, I think the government taking a positive interest and focusing in on data centres in a way that it has not done in the past can only be a positive thing.

Ben: Perfect, and do you think that fixing the planning problems or making planning easier, does that open the floodgates, does everyone in the data centre sector breathe a sigh of relief and it is all fixed?

Jocelyn: It will definitely be a welcome ease of what is quite a difficult process if you are looking to identify sites for development of data centres. Simplicity of a planning system would be really welcomed by the sector. So, I think the calling in of these two decisions is helpful ensuring a central government willingness will override local fear and a dislike of data centres. But I think simplifying the entire system around it would also be very welcome. But probably an even bigger issue than availability of land and a planning system is the power that is available to data centres.

You talked about the size of data centres, the other way to think of them in terms of capacity is the amount of megawatts of power they are drawing from the system. There are already parts of the country in west London, around Slough, where there is no more availability of power currently and there will not be for a good number of years, and so those kinds of lead times and the length of time you have to wait to get power connections, to get the commitment from National Grid that they will have an amount of power available at your location and your vicinity, that is even more of a concern in the industry actually then the availability of land, the ability of the government to want to upgrade the National Grid and make that power available.

It is possible that other influences on the data centre sector could ease that to some extent, seeing the rise of edge data centres where the locations are less about being around London, and the key connectivity hubs around London, are more about being near other urban centres where the direct users of the services that data centre is providing are. So, you have low latency between where the data centres are and where the users of the services are. And equally AI of course, there is so much talk about AI in every kind of industry, for the data centre industry that issues with AI are not actually about the amount of space they need, it is the power draw. AI is using denser server racks which take up less space but an awful lot more power and therefore it requires a different cooling design and infrastructure to keep the servers working well within that smaller, more compact amount of space. So, you have those kinds of different trends and pressures driving the market in different ways, which might to some extent help alleviate some of the concerns around availability of power and land and finding places where those two things actually come together.

And the final element that I think is an issue around development of data centres in this country, and you have alluded to it already, is that tension between what is going on in the locality and what people want to see on their doorstep. I think outside of people in the digital infrastructure sector there is a lack of understanding amongst the wider population about what a data centre actually does and the services that it underpins. If there was more of a conversation about the fact that data centres power all our online shopping, our online banking, our online healthcare, our ability to work from home, I think there would be a greater acceptance of what having one of those large facilities on your doorstep might mean, and therefore you help overcome some of that local tension. And there is a sustainability angle to that as well, data centres producing an enormous amount of heat and a lot of interest in the industry and seeing how that heat could be harnessed within a local location that is approximate to the data centre to actually make use of what is coming out of it, which could put a very different spin on it for local community.

Ben: Sure.

Jocelyn:So, having seen what Angela Raynor has done with these two call-ins, do you have any predictions from a planning point of view as to what we might see in the future? Do you think there will be more of those style of call-ins?

Ben: Yes, I think the longshot is that the infrastructure planning regime is amended. So, we have two regimes in the UK, we have got the Town & Country Planning Act and we have got the Planning Act 2008, that is the one for power stations, airports and motorways and what have you. And it is the infrastructure planning regime which is determined by government. So, there is a rumour that we might see data centre development, perhaps of a certain scale brought into infrastructure planning and that means it is determined by central government. But the trouble is with that, that feels like a very long and difficult fix, so you have to have a National Policy Statement setting out the various planning policies for data centres, that has to be then approved by parliament, so that takes a process, we would need to amend the primary legislation in the 2008 Act as well. The applications take about two and a half years with a fair wind to prepare, to submit, to go to local examination for six months and then decisions. So that feels like it might be a solution if you know a scheme is super complicated, very controversial, going to end up in an enquiry and so forth. However, I think the more likely and much quicker fix is that we get a ministerial statement. So, in the same way we had one in 2012 from the government saying this is what we are going to consider when we are deciding whether to call-in, I think we will have a ministerial statement from the Labour government saying data centres of a certain description, whether it is by power, by capacity or whatever it is going to be, will just automatically need to be referred to the Secretary of State. We will still have the enquiry so we can get that community engagement, but we will take the decision away from the local authority every time and central government will determine it.

Jocelyn: Really interesting. Thank you very much Ben for joining us today, I hope you have all enjoyed the conversation.

Ben: Thank you, Jocelyn.

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