Last September was hailed as a landmark moment for the North East tech sector when the government announced the region would become the UK’s latest AI Growth Zone — an initiative designed to drive economic growth and create thousands of jobs.
The announcement followed a series of major investment commitments. US investment giant Blackstone had already pledged £10bn to develop a data centre in Blyth through its subsidiary QTS, while separately Nscale, ChatGPT-maker OpenAI and NVIDIA unveiled plans to partner on Stargate UK, a major new AI infrastructure project.
OpenAI’s proposed data centre scheme, planned across several UK sites, included a location at Cobalt Park in North Tyneside.
At the time, Dr David Dunn, chief executive of Dynamo North East, said the second data centre project involving Nscale, OpenAI and NVIDIA would help “put the region on the map as a global tech hub”.
READ MORE: Regulations and costs blamed as OpenAI pauses multi-billion pound NE data centre investment
But OpenAI recently announced it is pausing its data centre project in the UK, blaming an “unfavourable regulatory environment” and high energy costs, adding that it would only proceed once conditions were in place “to support sustained, long-time investment”.
What this means in practical terms is that timelines around OpenAI’s proposed North East data centre plans are now unclear, with no certainty over when, or if, the project will resume.
While the decision has been described by some as a “blow” to the North East’s AI Growth Zone ambitions, regional leaders insist the wider strategy remains firmly on track.
A spokesperson for the North East Combined Authority said the North East remains “open for business” and is focused on “securing investment, jobs and long-term growth” for local people.
“The North East remains one of the UK’s designated AI Growth Zones, with strong assets in power, land, skills and applied innovation, and our direction has not changed.”
And Dr Dunn from Dynamo North East said the region still has a clear opportunity ahead as there is “still a strong plan to make the most of the AI Growth Zone”.
“Dynamo is looking forward to playing a part in the Growth Zone that will bring regional benefits – such as more jobs, meaningful AI adoption and a raft of new AI companies – as well as the North East playing an important role in the UK expanding its world-class tech ecosystem.”
At the North East Chamber of Commerce, chief executive John McCabe described the pause as a “setback”, but said the region is ready to “see this project through”.
“As one of the UK’s designated AI Growth Zones, the North East is well placed to drive digital transformation that benefits people and places across the region and the wider UK. Digital capability is essential to competitiveness, productivity and inclusive economic growth. It supports businesses to access new markets, attract and retain talent, and become more resilient.
“The North East remains eager to work with government to see this project through and boost AI and technology innovation in the UK.
“It’s vital that national challenges around energy costs and regulation are addressed to unlock investment, support sustainable job creation and ensure the North East plays a full role in driving national growth. The region stands ready, with the right conditions we can be leaders in digital transformation.”
‘More of a warning than a verdict’
Dr Richard Whittle, Professor of AI and Public Policy at The University of Salford, said OpenAI’s decision should be seen less as a rejection of the North East and “more as a warning” about the UK’s wider AI infrastructure model and capacity than any “verdict” against the region.
“OpenAI paused Stargate UK citing high energy costs and an unfavourable regulatory climate, which goes straight to the core of what ministers have been trying to solve with AI Growth Zones, faster planning, better grid access, and lower power costs.
“In other words, the pause does not prove the North East is the wrong place for AI infrastructure, it suggests that even priority locations will struggle unless power, permitting and policy certainty are materially better than they are now. Let’s definitely not forget the current geo-politics which may include political pressure not to invest in the UK.”
Despite the setback, he said the longer-term picture for the region is “still positive”.
“The government has designated the North East as an AI Growth Zones, promised targeted funding, and said these zones come with planning support and electricity-cost reductions. The new AI Growth Zone could help unlock jobs and billions of investment. Albeit there are questions over who exactly benefits from all of this.
“The region already has a major signal of market interest in the form of Blackstone’s approved hyperscale data-centre project. The NE still looks credible as an AI infrastructure hub, arguably more credible than before, but only if it can convert its AI Growth Zone into the conditions required for AI growth.”
Looking beyond the region, Whittle said the pause could also be a significant ‘AI reputation’ hit.
“Whilst I imagine the political pressures paid a part, Open AI’s reasoning is solid. I wouldn’t necessarily say an unfavourable regulatory environment, which is navigable, I’d say an uncertain UK AI regulatory environment.
“This is terrible for investment, continued discussion, delayed policy announcements and political turmoil make investment difficult. Energy costs are comparably high. Stargate signalled that the UK could attract frontier scale AI investment, but it is a flagship policy, if it cannot be landed can we land anything? Its pause, questions the government’s position that the UK is a great location for large AI build and exposes the weakness of relying on international partners to bolster UK AI capacity.”
