In February 2025 the prime minister of Mauritius stated that the UK government offered a revised deal regarding the Chagos islands. This included Mauritius gaining complete sovereignty over the island of Diego Garcia, the location of a US military base, and a doubling of the initial £9 billion payment to Mauritius to £18 billion by linking the annual payments to inflation.[1] The £9 billion payment would be made over 99 years. This deal represents a break from precedent in territory deals, in this case the UK is both ceding territory and paying a fee for it. The Chagos deal is also uniquely expensive when compared with previous deals where territory was purchased.
The UK government has stated that was elected first and foremost to fix the public finances.[2] Therefore, while increasing taxes by £40 billion at the October budget, [3] setting the UK on a path for a record tax burden, and borrowing by an average of £32 billion over the next five years,[4] the government is also offering billions to Mauritius to give them sovereignty over the Chagos islands in return for little.
This briefing note compares the costs of the two reported deals to other areas of public spending.
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Key findings
- The lower £9 billion estimate for the Chagos deal is greater than the whole life cost of the Lower Thames Crossing, which totals £8.95 billion.[5]
- The higher £18 billion estimate for the Chagos deal is equal to what the government expects to save for 12 years by means testing winter fuel payments.[6]
- The costs of the TransPennine route upgrade (£11.1 billion), affordable homes programme (£11.6 billion), early years childcare reform programme (£15.1 billion) and universal credit reform programme (£17.3 billion) are all lower than the higher estimate of the Chagos payment.
- The lower estimate of the Chagos deal is more than the combined costs of frontline digitalisation, the new plan for immigration, making tax digital, immigration removal centre expansion programme, electronic monitoring expansion, teacher development reform programme, digital services at the border programme, fraud reform, AI labs and cerberus.
- The lower cost of £9 billion for the Chagos deal is almost nine times more in real terms than the combined cost of the Louisiana purchase,[7] Alaska purchase and the treaty of Guadalupe Hidalgo.[8],[9]
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[1] Grylls, G., Sir Keir Starmer ‘to push ahead’ with Chagos Islands deal, The Times, 4 February 2025.
[2] Yorke, H., Burning anger on winter fuel payments, but Rachel Reeves is not for turning, The Times, 7 September 2024.
[3] Simpkins Edwards, Raising £40 billion in tax – a summary of the key measures announced in Labour’s budget 2024, 30 October 2024, www.simpkinsedwards.co.uk/articles/raising-40-billion-in-tax-a-summary-of-the-key-measures-announced-in-labours-budget-2024, (accessed 6 February 2025).
[4] Office for Budget Responsibility, Economic and fiscal outlook – October 2024, 30 October 2024, obr.uk/efo/economic-and-fiscal-outlook-october-2024/#:~:text=1.5%20The%20net%20effect%20of,a%20year%20from%202025%2D26, (accessed 6 February 2025).
[5] Infrastructure and Projects Authority, GMPP government major projects portfolio AR data March 2024, 17 January 2025, assets.publishing.service.gov.uk/media/6787e8f7bca9366c9f56df86/Government_Major_Projects_Portofolio_AR_Data_March_2024.xlsx, (accessed 6 February 2025).
[6] Coleman, C., Changes to winter fuel payments: The Social Fund Winter Fuel Payment Regulations 2024, House of Lords Library, 6 September 2024, lordslibrary.parliament.uk/changes-to-winter-fuel-payments-the-social-fund-winter-fuel-payment-regulations-2024/, (accessed 5 February 2025).
[7] Del Vecchio, L., Louisiana Purchase: History and Facts, Planergy, 14 November 2024, planergy.com/blog/louisiana-purchase/, (accessed 6 February 2025).
[8] The Economic Times, The U.S. paid $7.2 million in 1867 for Alaska—how much would it need to buy Greenland now?, 8 January 2025, economictimes.indiatimes.com/news/international/global-trends/the-u-s-paid-7-2-million-in-1867-for-alaskahow-much-would-it-need-to-buy-greenland-now/articleshow/117038790.cms (accessed 5 February 2025).
[9] Glass, A., U.S. and Mexico sign Treaty of Guadalupe Hidalgo, Feb. 2, 1848, Politico, 2 February 2019, www.politico.com/story/2019/02/02/us-mexico-treaty-of-guadalupe-hidalgo-1137572 (accessed 6 February 2025).