Cost of Labour’s Chagos deal ‘to soar by another £288million’

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.

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.

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.