Image uploads no longer scaled

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I have a copy of my live site on a local host as a staging server/lab. This issue is not on live site, and I have no idea why it is happening. No error is logged (debug on), nor will disabling all plugins and revert to default WP theme change the behavior. Uploading via Edit Post > Add media or from Media library show the same behavior.

The upload of an image that is larger than the WP default max size is automatically scaled down to this max size (2560 px), but in lab this is not happening, and thus the original image is used, and no other resized versions are created either.

The image is uploaded, but not processed.

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