The deal attracted protests from Chagossians. (Image: Getty)
Labour’s Chagos deal will see even higher costs than feared, under Treasury reforms overseen by John Healey. It comes after the new Chancellor announced that he would be changing the way Whitehall calculates the cost and benefits of long-term spending. The sweeping changes mean the cost of the much maligned deal over the Chagos Islands will climb.
Under the deal, which has been slammed by Chagossians, Labour would hand the British territory to Mauritius, and rent back the Diego Garcia airbase on a 99-year lease. Now, the cost of that deal is reportedly set to spike by £288million, with the British taxpayer picking up the increased tab.
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Under current rules, the expense of a long-term government spend is estimated, and a discount applied to account for inflation over the time period.
It is called the ‘social time preference rate’ (STPR) and is used to reduce costs by 3.5 per cent every year for the first three decades of an investment.
But Mr Healey has announced that he will reduce that discount from 3.5 per cent to 3 per cent, which is intended to stimulate growth.
The Daily Telegraph reports that the decision to reduce the STPR rate will raise the cost of the Chagos deal from £3.39bn to £3.68bn.
Nigel Farage opposed the deal. (Image: Getty)
Mr Healey said: “I’m making changes to the Treasury Green Book, reducing the discount rate from 3.5 per cent to 3 per cent, and that will skew investment towards projects with more long-term potential, meaning that more places across the UK will get a fair hearing.”
Both the Conservative Party and Reform UK have opposed the deal and argued that its high price tag is against the country’s interests.
Critics have said it could cost as much as £35bn, a point the government contests.
When he announced the deal Sir Keir faced extensive opposition to the decision to give away the islands, which have been a British overseas territory since 1965, when they were detached from British-administered Mauritius.
The Treasury was approached for comment.
Cost of Labour’s Chagos Deal Set to Soar by Another £288 Million
The cost of the controversial Chagos Islands agreement is facing another increase, raising fresh questions about the financial consequences of the deal and the government’s handling of one of Britain’s most contentious foreign policy decisions.
An analysis published in September 2026 reported that the estimated net present value of the agreement would rise by £288 million, taking the figure from approximately £3.39 billion to £3.68 billion.
The increase follows changes announced by Chancellor John Healey to the way the Treasury assesses the costs and benefits of long-term government projects.
Although the reform was designed to encourage investment in infrastructure and projects with long-term benefits, it has also changed the calculation used to assess the agreement involving the Chagos Archipelago and the strategically important Diego Garcia military base. <Cite refs={[“turn678263search0″,”turn678263search1”]} />
The development has reignited criticism from opponents who argue that the government must explain why British taxpayers should commit billions of pounds to an arrangement involving territory that Britain has controlled for decades.
However, the reported increase does not mean that the government has suddenly agreed to pay an additional £288 million in cash immediately. It reflects a change in the financial method used to calculate the agreement’s value in today’s money.
Understanding that distinction is essential to assessing the true implications of the announcement.
Why the cost has increased
The reported increase is linked to a change in the Treasury’s social time preference rate, a measure used when assessing the value of costs and benefits that occur over many years.
Previously, the Treasury applied a discount rate of 3.5 per cent annually for the first 30 years of relevant projects.
Healey announced that the rate would be reduced to 3 per cent as part of wider changes to the Treasury’s Green Book guidance.
The objective was to give greater weight to investments whose benefits may take many years to materialise, rather than making long-term projects appear less attractive because much of their impact lies in the future.
However, the same principle affects the calculation of long-term liabilities.
When future payments are discounted at a lower rate, they generally have a higher estimated value in today’s money. Consequently, the change increased the reported net present value of the Chagos agreement.
According to the analysis published by The Telegraph on September 7, 2026, the revised calculation increased the estimated cost from £3.39 billion to £3.68 billion, a rise of £288 million, or approximately 8.5 per cent. <Cite refs={[“turn678263search0″,”turn678263search1”]} />
The change therefore illustrates how accounting assumptions can influence the headline cost of a long-term government commitment, even when the underlying payment schedule has not changed.
For critics, the increase provides another reason to question the financial presentation of the agreement.
For the government, the revised calculation reflects a broader policy change intended to encourage investment across the public sector.
What is the Chagos Islands agreement?
The agreement concerns the future sovereignty of the Chagos Archipelago, an Indian Ocean territory that Britain detached from British-administered Mauritius in 1965.
The islands became a British overseas territory, known as the British Indian Ocean Territory.
The largest strategic concern is Diego Garcia, which hosts a major military installation used by the United Kingdom and the United States.
The base has played an important role in military operations and wider regional security. Its location makes it valuable for supporting operations across the Indian Ocean and parts of the Middle East.
Mauritius has long challenged British sovereignty over the archipelago.
In 2019, the International Court of Justice issued an advisory opinion stating that Britain’s administration of the Chagos Islands should end as rapidly as possible. The United Nations General Assembly subsequently called on Britain to end its administration.
The UK-Mauritius agreement was intended to address the sovereignty dispute while preserving the continued operation of the Diego Garcia base.
Under its terms, sovereignty would pass to Mauritius, while Britain would retain access to Diego Garcia through a long-term lease arrangement.
Supporters argue that the agreement offers a way to protect the military installation while addressing the international dispute over sovereignty.
Opponents argue that Britain is paying substantial sums to secure continued access to a base on territory it previously administered.
The disagreement has made the agreement a major political issue, with questions about national security, international law and public spending becoming closely intertwined.
How much will taxpayers actually pay?
One reason the debate has become so heated is that different methods of calculating the agreement produce substantially different headline figures.
The government has cited a net present value of approximately £3.4 billion under the previous calculation.
That figure is designed to express payments spread over nearly a century in terms of their value today, using assumptions about inflation and the relative value of money over time.
A separate calculation places the nominal total of the agreement’s payments at approximately £34.7 billion over 99 years.
That larger figure includes payments made across the full period without discounting them to reflect their present value.
A third estimate, which expresses payments in today’s prices without applying the same social time preference discount, is approximately £10 billion.
These figures describe different ways of measuring the same long-term financial commitment rather than three separate bills.
A government payment made many decades from now does not have the same economic value as an identical payment made today. Discounting attempts to account for that difference, although the result depends on the assumptions used.
The Press Association’s fact-checking analysis published in January 2026 explained how the three estimates were derived and why they differ. <Cite refs={[“turn678263search3″,”turn678263search4”]} />
Nevertheless, the distinction does not eliminate legitimate questions about the total amount of money that will ultimately leave the public finances.
Taxpayers may reasonably want to understand both the present-day economic assessment and the expected cash payments over the agreement’s full duration.
The payment commitments under the deal
The agreement establishes a series of payments to Mauritius.
Under the published terms, the United Kingdom would pay £165 million annually during the first three years.
From the fourth year, the annual payment would fall to £120 million, with inflation adjustments applying from the 14th year.
The agreement also provides for a £40 million contribution towards a trust fund intended to benefit the Chagossian people.
In addition, Britain would provide a £45 million annual development grant for 25 years to support economic development and welfare in Mauritius.
These commitments form part of the overall financial structure of the agreement. <Cite refs={[“turn678263search3″,”turn678263search4”]} />
The length of the arrangement makes it particularly difficult to forecast its ultimate financial impact with precision.
Inflation, economic growth, the timing of implementation and the assumptions used in financial assessments can all influence how the commitment is presented.
A 99-year agreement also extends far beyond the political lifetime of the current government. Future administrations and taxpayers will therefore remain affected by decisions made today.
That makes transparency over the payment structure and the assumptions behind the published estimates especially important.
Opposition demands answers
Conservative and Reform UK politicians have strongly opposed the agreement, questioning whether its financial cost is justified.
Critics argue that Britain is effectively paying to retain access to a military facility on territory whose sovereignty it has agreed to transfer.
They also question whether the government placed sufficient weight on the long-term financial obligations when presenting the deal to the public.
The additional £288 million has provided further ammunition for those criticisms.
Opponents say the government should explain why the headline estimate has changed and how taxpayers can compare the agreement with alternative arrangements for securing the base.
They have also argued that the public deserves a clearer account of the agreement’s total nominal cost rather than relying exclusively on a discounted present-value figure.
The government’s accounting approach, however, is not unique to the Chagos agreement. Discounting future costs is a standard method used in public-sector economic assessments.
The debate is therefore not simply about whether the Treasury should use discounted figures. It is also about how those figures should be communicated and whether the public receives a complete explanation of the financial commitments involved.
A clear presentation of both discounted and undiscounted figures would help voters understand the different dimensions of the agreement without confusing one measure for another.
National security remains central
The financial controversy cannot be separated from the strategic importance of Diego Garcia.
The base is an important component of British and American military cooperation, and its continued operation is a central objective of the agreement.
Supporters argue that securing long-term access to the facility is worth a substantial financial commitment because of its role in defence and international security.
They also contend that resolving the sovereignty dispute could reduce diplomatic uncertainty and provide a more durable basis for the base’s continued operation.
Critics counter that the government must demonstrate that the financial arrangements are proportionate to the security benefits.
They argue that the agreement should be assessed against the cost of alternative basing arrangements and the risks associated with transferring sovereignty.
Those questions have become more pressing because the agreement has encountered political obstacles.
In 2026, concerns raised by the United States complicated the process of moving towards implementation. The government has continued working with Washington and Mauritius to find a diplomatic resolution that protects the military base and addresses the outstanding issues. <Cite refs={[“turn678263search2″,”turn678263news5”]} />
The future of the agreement therefore depends on more than its financial calculations. It also requires continued diplomatic cooperation and confidence that the base can operate securely.
What happens next?
The reported increase in the estimated cost is unlikely, by itself, to settle the political dispute.
Instead, it has renewed attention on how the agreement is assessed, how its financial obligations are explained and whether the government can secure the strategic benefits it says are necessary.
Ministers will need to continue addressing questions about the payment schedule, the effects of the revised discount rate and the status of the agreement’s implementation.
Opposition politicians are likely to keep challenging the deal’s affordability and demanding clearer explanations of its long-term implications.
For the public, the central issue is whether the financial commitment represents an appropriate price for maintaining access to Diego Garcia while resolving the dispute over sovereignty.
The £288 million increase is a change in the estimated present-day value of the agreement, not an immediate additional cash payment. But it still demonstrates how sensitive the headline figure can be to the assumptions used in government calculations.
Ultimately, the agreement must be judged against both its financial obligations and its strategic purpose.
The government argues that securing Diego Garcia is essential to national security. Its critics believe the price and the transfer of sovereignty demand greater scrutiny.
Until the outstanding diplomatic and political questions are resolved, the Chagos agreement is likely to remain a contentious issue in Britain’s debate over public spending, defence and its international responsibilities.