Diego Garcia Military Base and British Indian Ocean Territory Bill

Baroness Noakes Excerpts

2nd reading
Tuesday 4th November 2025 Lords Chamber

[Baroness Noakes (Con)]

My Lords, there is pretty stiff competition for the accolade “worst Bill of this Session”, but this Bill is right up there in contention.

The Chagos Islands are linked to Mauritius only by virtue of the fact that they were both once administered as part of one colony. There is no historical, geographical or cultural basis for Mauritius claiming ownership. I have no idea why, in 1965, the Labour Government decided to pay Mauritius £3 million for agreeing to detach the Chagos Islands, but that is what they did. That £3 million is something like £70 million in today’s money. Labour has form on chucking taxpayers’ money at Mauritius. The cost of this Bill is what I want to focus on today.

The Bill itself contains no financial provisions, but it is important because, if it passes, it will pave the way for ratification of the treaty, which will trigger the payments described in the treaty. This is where the smoke and mirrors start to come in. As has already been mentioned today, the Explanatory Memorandum to the treaty says:

“The average annual cost to the UK … is £101 million in 2025/2026 prices”.


That is technically correct, but we will be spending taxpayers’ money in cash, not as expressed notionally in this year’s prices.

The biggest element of the package runs for the whole of the 99 years. It starts at £165 million for the first three years, then it is £120 million for the next 10 years. After that, it is indexed for the whole of the remaining period using the GDP deflator. This means that, by the end of the 99 years, we will be paying more than £650 million a year—assuming that the deflator comes in at 2%, which is a fairly heroic assumption given the Bank of England’s current performance on controlling inflation. That is what compounding does, even when using the very low rate of 2%. As say, if inflation goes above that, the figure could be very much more. In cash terms, the average is not £101 million; it is at least three times that.

That is not all. The payment structure is front-end loaded, which means that using an average of 99 years understates the short-term fiscal impact. If we look just at the first 10 years, the average payment in 2025-26 prices is not £110 million; it is about £150 million. In cash terms, it is around £170 million. The Secretary of State for Defence told the other place that the treaty would cost the UK less than 0.2% of the defence budget. That is about £120 million, using the 2025-26 budget numbers. In cash terms, we will never, never pay less than £120 million a year. At current prices, we do not pay less than £120 million until about year 30 of the deal. Did the Secretary of State for Defence not understand the deal—or had he concocted this description in a deliberate attempt to confuse?

The Explanatory Memorandum goes on to say that the total expected cost of the finance package, using a net present value methodology, is £3.4 billion, as we have already heard. The total cash cost to taxpayers via the Exchequer is nearer 10 times that. The figure of £3.4 billion not only knocks off future inflation to get to 2025-26 prices; it then knocks off very much more by using a social time preference rate in accordance with the Treasury’s Green Book, and that rate starts at 3.5% and drops down to 2.5%. I will spare noble Lords a discourse on the social time preference rate. It is a fact that the Government use a lower figure when it suits them. Indeed, when the noble Lord, Lord Stern, was asked to analyse the economics of climate change, he used a discount rate of 0.1%. The Government did not even challenge that. Far from it: they used the report to justify the completely crazy costs of net-zero policies.

It is clearly convenient for the Government to use a high discount rate when they are calculating what they claim to be the cost of this policy. I am not going to argue about the discount rate. Instead, I am going to argue that it is simply not relevant. The Treasury’s Green Book draws a clear distinction between what it calls the economic dimension, and the financial dimension. Discounting is relevant to the economic dimension but not to the financial dimension. The Green Book describes discounting in the following terms. The reason for social discounting is to allow proposals of different lengths and with different options, and with different profiles of net costs and benefits over time, to be compared on a common basis. That is not what we are doing here. There is no question of comparing differing proposals in the Bill we have before us. The Government are using discounting to try to pull the wool over our eyes, but we are not deceived. The financial cost of this Bill is not £3.4 billion. It is £35 billion at best.

This is a bad Bill, for the many reasons that have been given by my noble friends and other noble Lords today. For me, it is another example of the reason why the Labour Government cannot be trusted with taxpayers’ money. This morning, the Chancellor of the Exchequer as good as announced that she is going to raise taxes in this month’s Budget. In the first five years alone, hugely important to the Budget arithmetic, nearly £900 million will be given to the Mauritian Government. How can the Government look British taxpayers in the eye and say that they will make us pay more tax so they can give it away to a foreign Government?

--- Later in debate ---

[Baroness Chapman of Darlington (Lab)]

That is right, and I said that in my opening speech. This is about artisanal fishing. In the event of some sort of resettlement on the outer islands, those communities would need to sustain themselves. They would fish using traditional artisanal methods, and that is what the permission relates to. It would not permit any other form of fishing, because that would clearly be detrimental to marine life.

The noble Lord, Lord Beamish, chair of the ISC, said—and this is about money—it is disappointing that there continues to be reference to artificially inflated figures of the cost of the treaty. It is misleading to ignore inflation and the changing value of money over time. The net present value of the treaty is what we have always said it will be: £3.4 billion over its lifetime. This is in line with long-standing practice in how the Government account for all long-term spend. The Office for Statistics Regulation and the OBR have verified these figures and confirmed that we have applied this methodology correctly.

[Baroness Noakes (Con)]

My Lords, the point is that, in accounting for money, cash accounting is used in government. What she is talking about is economic analysis, which is not the same as financial analysis. If she had been in the Chamber she would have heard my speech on this subject. It is clear that, when we come to draw up accounts for the Government, cash goes into this in pounds expressed in the time expended.

[Baroness Chapman of Darlington (Lab)]

I apologise to the noble Baroness for missing her speech, and I will read it in Hansard; the bladder is only so strong. What matters here is that there is consistency across government and over time in the way that we do these things. These things are done the same as they would be done for any other agreement.

I know that some people take a different view of the OBR from the one that this Government take. We take it seriously, and it has looked at our figures and verified them. The noble Baroness could by all means come back to this in Committee—I am sure that she will—but, for tonight, I will stick with what the OBR had to say on this issue. The way that we have done this ensures that the figures are realistic and comparable, not inflated by simply adding up future payments while ignoring the depreciation of value over time.

The noble Lord, Lord Altrincham, made quite a thoughtful speech. He is worried about the money. I should point out that we do not see this as an open market situation by any means. He seeks clarity about total cost. I can confirm that £3.4 billion is just that—it is the total cost.

The noble Baroness, Lady Meyer, suggested that the US should be contributing to the cost of the treaty, given its joint use of the military base. We have to recognise that the US pays for the operating costs of the base, and these are several multiples greater than any payments by the UK. We benefit greatly from this arrangement. This allows us to access a valuable capability that keeps our country safe and the US is paying far more for it than we do.

Diego Garcia Military Base and British Indian Ocean Territory Bill

Baroness Noakes Excerpts

Report stage
Monday 5th January 2026 Lords Chamber

[Lord Horam (Con)]

My Lords, briefly, I support the remarks made by my noble friend Lord Callanan, and I particularly support his Amendment 47. I also support Amendment 50 from the noble Lord, Lord Purvis.

The scrutiny of this Bill by the House of Lords has been excellent, far better than in the House of Commons. What struck me, as an economist, is that this is a terrible deal. It is not just terrible; it is an absolute shocker. First, I strongly support the £40 million towards a trust fund for the Chagossians. As has been said repeatedly throughout these debates, they have had a terrible deal over many years from all Governments, and I do not begrudge a penny of the £40 million and the arrangements that have been mentioned. I am reassured by what the very capable Minister has said about that during the course of our debates.

Secondly, of course, that is small beer by comparison with the £3.4 billion or £34 billion, as my noble friend Lady Noakes pointed out earlier in the debate, which is the compensation—up to £34 billion of it—for the use of this particular site. Remember that in the original deal in 1965, conducted by Harold Wilson, the then Prime Minister, there was compensation paid. When he said, in effect, to the Mauritian Government, “You can have your independence, but we wish to keep Diego Garcia and the Chagos Islands”, he gave them £3 million in compensation. We may sniff at £3 million in 1965, but that is £75 million to £79 million in today’s money, which is very considerable compensation. Therefore, I do not see why any further compensation of billions of pounds should be paid to the Mauritian Government.

Thirdly, the treaty stipulates that the Mauritian Government will get £45 million a year for 25 years in development aid. I have been to Mauritius twice—first in a parliamentary delegation and, secondly, as a private citizen. Mauritius is a hugely successful country. My noble friend Lord Deben may castigate its environmental qualifications, but economically it is extremely successful. It started out over 50 years ago with an agricultural economy as a producer mainly of sugar. It then diversified into business, supplying Marks & Spencer, Waitrose and other sorts of companies in this country. It then went into high-end tourism, which was extremely successful, as I personally experienced on my second visit. In addition to that, it is now a big financial centre. Terry Smith, one of our biggest investment advisers, lives there and runs his entire investment empire from Mauritius, because it is a suitable place to do so—what a lovely place to run an investment company from.

All of this has contributed to Mauritius, along with the Seychelles, being the outstanding economic performer among all the African countries; for some absurd reason, it is bracketed with the African continent. Mauritius and the Seychelles are more successful in terms of GDP per head than Egypt, South Africa and Nigeria—and all the other countries—yet we are giving them development aid. That is absolutely incredible. Money can be spent only once; if it is being spent on this, it is not being spent on the NHS. The Government maintain that they are putting the people of this country first, yet they are spending billions of pounds overseas quite unnecessarily. My noble friend Lord Callanan is absolutely right to seek to have this investigated. In fact, in my view, there is a reason why this particular treaty should not be ratified unless we have gone down that path; we certainly should have much greater transparency around its economic and financial consequences than we have already.

[Baroness Noakes (Con)]

My Lords, I was tempted to come and do another forensic analysis of the financial aspects of the treaty, but I will restrain myself and just speak briefly in support of all of the amendments in this group.

As we heard from my noble friend Lord Callanan, the Government like to talk about an average of £101 billion a year, in 2025-26 prices, and the total cost being £3.4 billion; that is discounted using the social time preference rate. All these figures ignore the cash that is going to go out of the Treasury’s coffers and into Mauritius’s coffers. All these amendments are trying to do is get the focus back on cash because, at the end of the day, cash is what is important. It is cash that will end up in the Government’s accounts. It is cash that will be leaving our economy.

Amendment 39 would require a schedule of the amounts likely to be paid, which would show no single year in which £101 million will be paid—it will always be more than that—and would show that the total will be not £3.4 billion but closer to £35 billion. It would also show that, in the first five years, the cost will be nearly £900 billion; of course, that is a really big sum of money in the context of a cash-constrained Budget. I note in particular that Amendment 50 in the name of the noble Lord, Lord Purvis of Tweed, would ask for that schedule to be updated every five years. This is also very important because inflation expectations can vary. For example, if there were just a small inflation spike, as occurred in 2023, you could change the overall numbers by £1 billion or £1.5 billion; that is a very modest assumption.

It is really important to keep a strong focus on cash and not to talk in these funny money terms, which try to divert attention from how much money is really involved.

[Lord Purvis of Tweed (LD)]

My Lords, I wish to speak to Amendment 50, to which the noble Baroness, Lady Noakes, referred; I am grateful for her support.

This treaty is both a diplomatic measure, when it comes to sovereignty, and a financial relationship; it also adds some obligations to a community whose rights have, as we have acknowledged, been diminished. So it is quite unusual. That is why, at Second Reading, I raised concerns around the financial elements of the treaty, the lack of clarity around how much will be allocated to addressing the rights of the Chagossian community, and the lack of transparency. I acknowledge Letter No. 1, which is appended to the treaty and outlines the figures, but I feel that further clarity is required.

I will not repeat the points I have made previously, but Amendment 50 seeks to address the major concerns around the lack of transparency in the planned implementation of the financial elements of the treaty—including through, as the noble Baroness, Lady Noakes, indicated, a five-yearly update to Parliament on both progress and the contemporaneous situation with regard to the finances.

New subsection (4) in Amendment 50 also introduces what I would consider to be a break clause in the financial relationship outlined in the treaty and in letter one. Earlier in our proceedings, the Minister helpfully said that the treaty could be terminated on two grounds only. The second ground was in reference to the Vienna convention, if there are circumstances which mean the treaty is unimplementable, and the first element is the failure to make payments by the UK.

I say this without suggesting that Mauritius will act in bad faith or has entered into the treaty in bad faith, but there are no mechanisms which would allow us to consider whether Mauritius is also operating to fulfil its obligations, beyond those which have been elevated on diplomatic terms to Prime Minister level for dialogue. If that dispute mechanism has been exhausted, we believe that there should be some formal mechanism by which Parliament should then have the ability to say that the agreement on the finances reached under letter one should require supplementary approval. Indeed, the obligation on the Government of the day would be to come back to Parliament to say that the dispute mechanisms have been exhausted and no agreement has been reached, and therefore that this needs to be brought back. The sums of funds are extremely high; the obligations are serious. Therefore, I hope the Government will consider moving on this element.

Amendment 47, in the name of the noble Lord, Lord Callanan, is not at all contradictory to this, and if he tests the opinion of the House, we will support him on that amendment. I am also grateful so far for the indications of support for my amendment.