Labour’s Chagos Islands surrender costs could balloon by £288MILLION

Mr Healey announced yesterday he would change how his department would calculate the costs and benefits of long-term investments, in an attempt to stimulate economic growth.

However, the changes mean the 99-year lease of the Diego Garcia air base will rise by £228million or 8.5 per cent, the Telegraph reports.

The Treasury calculates the expense of long-term investments by applying discounts to account for projected inflation over decades and to factor in the total value of costs of benefits.

It is known as the "social time preference rate" (STPR), which essentially stipulates that money and costs later matter less than money and costs now.

Officials in Mr Healey’s department will reduce costs by 3.5 per cent every year for the first 30 years of a long-term investment, to apply STPR.

However, the Chancellor has proposed he will reduce this figure to three per cent, in order to stimulate long-term infrastructure projects in the UK.

Through a Freedom of Information request, it has been revealed the STPR calculation has been applied to the lease of the Diego Garcia base.

Mr Healey’s proposed STPR changes means the cost of Chagos Islands deal went from £3.39billion to £3.68billion.

The change affects both the annual payments to Mauritius and the development grant, without altering the actual terms of the agreement.

Mr Healey said yesterday: "I’m making changes to the Treasury Green Book, reducing the discount rate from 3.5 per cent to three 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."

The Internal Court of Justice ruled in 2019 the islands should be handed to Mauritius.

The UK signed a deal in May 2025 to do so, alongside billions of pounds in payments to lease back the Diego Garcia military base.

Sir Keir Starmer claimed the deal would cost the Government £3.4billion, once the STPR discounts had been applied.

However, critics said the real cost, without a discount rate, was over 10 times this figure, at £35billion.

The agreement had initial backing from the US, but this has stalled since April when President Donald Trump withdrew his support.

Mr Trump described the transfer at the time as an "act of great stupidity".

Legislation needed to implement the deal was subsequently dropped by the Government, but Defence Secretary Wes Streeting confirmed the Government will push ahead with the agreement.

Mr Streeting, outlining the Government’s position on the islands, wrote to James Cartlidge, the Shadow Defence Secretary: "The joint UK-US military base on Diego Garcia is critical to the security of the UK and our allies and the government remains committed to the agreement as the best way to secure the long-term operations of the base and protect it from legal challenge."

Prime Minister Andy Burnham spoke on the phone with Mr Trump yesterday, however, it is not known whether the pair discussed the contentious deal.

A No10 spokesman said the two leaders discussed the US economy, Ukraine and the Middle East.

Mr Burnham now finds himself in a difficult position - unable to proceed without angering Washington, yet equally unable to abandon the deal for fear of legal action from Mauritius.

One official in the Mauritian capital, Port Louis, said last month "all possibilities were being looked into".