Diego Garcia Military Base and British Indian Ocean Territory Bill

Lord Altrincham Excerpts

2nd reading
Tuesday 4th November 2025 Lords Chamber

[Lord Altrincham (Con)]

I thank the Minister for her patience in hosting this debate and welcome the Chagossians who have joined us this evening—they are very welcome in our House.

I start by noting that some matters are not obvious because they are not obvious, and this one is really quite a complicated story to explain. It was interesting to hear how the Minister was able to explain it, in a sense tactfully, because it involves at least three countries, the rights of individuals, a wide-ranging view on legal matters and interpretations, and environmental issues. And only then do we get to the defence issues and, finally, to a very large amount of money.

To understand why we are paying out so much money, we need to understand why the agreement is in the form it is. That always goes back to the claim on sovereignty and the Government’s anxiety over the legal risks. The Minister in the Commons, just like the Minister this evening, referenced once again the International Agreements Committee report from the noble and learned Lord, Lord Goldsmith, and the statement in that report—the report is very carefully written—that if agreement was not reached then there would be some risk to the base. We always hear this. The Government do not like to quote the other statements made in the conclusion of that report, where it says that the findings in 2019 were non-binding. It also notes that the treaty does not make appropriate provisions for the Chagossians and concludes with an observation that the treaty is a compromise. That is a good word to describe the situation the Government are in: it is some kind of compromise.

Indeed, our colleagues on the International Relations and Defence Committee, chaired by the noble Lord, Lord De Mauley, struggled with the legal position here. They heard lots of legal opinions and they were not able to reach any conclusion. They said there is a wide range of opinions, and came up with the language that it was a political decision. Again, that is a fair way of describing it: we have a compromise for political reasons in the judgment of the Government.

We would expect the financial part to reflect the spirit of that—a spirit of compromise and of a rather complicated story. However, when you get to the financial part of this agreement, you find that, in fact, it is a great deal of money. My noble friend explained the initial payments, but the Government like to talk about an amount of £101 million, in this discounted, not-real-money way. The initial payments, incidentally, are over £200 million a year. The Government always go back to try to justify why we are paying this rental fee. They say, with great triumph, that there is precedent —we heard this in the House of Commons—in the example of France paying €85 million a year for a military base in Djibouti.

Of course, it is extremely unlucky to justify British public spending with reference to French public spending, but, putting that aside, the Minister in the House of Commons was probably not aware that the whole idea of introducing Djibouti came from the Mauritians. They introduced it because they wanted to introduce the concept of an open market rent—this had to be on an open market basis. But this situation is not even beginning to be on an open market basis. As we have just discussed, it is a very complex compromise. We should never have accepted the comparison to the Djibouti example at all and should never have started from that position. With a moment’s reflection—just a moment’s reflection—we find that the UK is in no position to seek an open market rent for an American military base. It is preposterous. It is not even beginning to be an open market situation.

Then we get to the overall economics of the situation. The Government love talking about this number of £3.4 billion. It is a great deal of money for those who do not really wish to pay any money for this. Unluckily for the Government, they do not seem to understand the financial risk of the contract, which could be for a great deal more. The reason for that, as we have heard, is that in the contract there is an inflation ratchet from year 14 to 99. It is not a question of how we account for it today; it will be real money that flows out. The ratchet starts in year 14, so quite soon.

The reason that matters is that a future Government will almost certainly need to retrade this situation, for reasons that we do not know today. What they will find is that the Mauritians do not see the contract the same way—they do not account for it the same way. They will see an extremely valuable exposure to UK inflation. The Government do not seem to understand the risk in their own contract. Could the Minister report to the House whether the value of this contract is actually £3.4 billion—that is, the capped value—with no further exposure above £3.4 billion? It is extremely important that the Government find a way to cap this exposure, because if it rolls any longer then it will be locked in as being uncapped. That will create a frightful row in the future between the UK and the Republic of Mauritius, but we are trying to settle rows between the two countries. We do not want a misunderstanding of the value of the contract.

Finally, I add one other important thought, because we are deficit financing the Government at the moment. It is very burdensome for the Government to pay money out of the country to another country. The Government like to point out that some public expenditure creates domestic stimulus. That itself will always be argued over, because some people will say there is too much waste and that the spending is inefficient. When the Government waste money domestically, there probably is some level of domestic stimulus, but when the money is sent to the Republic of Mauritius, there is not any. It is worse than that because, in addition, the money is not being spent on the military base and the treaty provides for priority to Mauritian contractors and Mauritian workers—there are no jobs for people from the UK in this. It is a straight loss out of the UK. It is particularly burdensome.

The treaty amounts to a shakedown of UK taxpayers by the Republic of Mauritius. In addition, it points to weakness in financial controls at His Majesty’s Treasury and by the Government. It may in due course create great misunderstanding if the Government have not properly appreciated the inflation exposure that they have in the contract. A future Government will meet that exposure with dismay, and future taxpayers will be taking the cost of it.

Diego Garcia Military Base and British Indian Ocean Territory Bill

Lord Altrincham Excerpts

Committee stage
Tuesday 18th November 2025 Lords Chamber

[Lord Weir of Ballyholme (DUP)]

My Lords, it is always a pleasure to follow the noble Baroness, not least because my Amendment 59 comes from a similar position to her Amendment 23, in that it is a probing amendment. Indeed, looking across the range of amendments in this group, there is a considerable similarity between them; they all come from a similar spirit.

The amendments in this group, including mine, reflect two particular anxieties and concerns with the Bill. First, there are the overall financial implications and the concerns that have been raised in relation to them. My amendment specifically looks at the financial implications for defence. Secondly, given that a number of the amendments seek for the Government to produce an assessment or report, there is a concern that we want to get clarity and full transparency from the Government on a range of financial matters. My amendment deals with both those concerns.

On the issue of finance, we have already debated the transfer of sovereignty to Mauritius, which is proposed by the treaty and the Bill. A number of us have expressed our deep opposition to that, but this is not simply a case of handing over sovereignty to Mauritius. We are not simply giving sovereignty to Mauritius; we are paying Mauritius to take the Chagos Islands off our hands. That, in and of itself, shows one of the problems with the Bill.

We have seen in black and white the figures for the various payments that there will be, and the range of different assessments of what this deal will cost the taxpayer overall over its lifetime. The Government put it at the lowest level, with a GDP deflator, at around £3.4 billion. I think the cash terms are around £13 billion. The Opposition have indicated their assessment, with inflation, at £35 billion. I know that, in another place, one of the other parties not represented in this House gave an assessment that it would end up being around £50 billion, so there is a very wide range of cost.

However, one thing we can say with a level of certainty, as indicated by the noble Lord, Lord Hannan, is that this is money flowing out of this country that cannot directly benefit this country. If we make a presumption, which I will come to in a moment, that this is, in effect, defence spending then it is not simply money that cannot be used for the overall benefit of the UK; in defence terms, it is an opportunity cost. It is not simply something that is additional to the Bill, but money that cannot be spent on other things.

Across the lifetime of this deal, whether we assess it at £3.4 billion, £35 billion or whatever figure you place on it, there will be real terms consequences for defence. It may seem a relatively small amount compared with what we will spend on defence over that period, but I will give a few examples from a defence point of view. The Type 26 frigate programme comes to about £8 billion, the “Queen Elizabeth” class carriers cost about £6.2 billion in total, and a single F35 fighter costs about £80 million. All those things are being taken away. Whatever money is assessed as the current value of our contribution to Mauritius via this deal is money that cannot be spent in this country.

Finally, this again comes to the point about trying to seek a level of transparency. There is a level of dispute over how much we are spending and how we assess it, but there is also a lack of clarity about the budgets that money comes from. I think there are three possibilities. Is this money, in general, coming out of the Foreign Office budget? Is it more particularly, under that category, money that will be deducted from what would otherwise be overseas aid, or is it coming from the defence budget? The purpose of my amendment is to probe that and try to gain some clarity and transparency from the Government about not simply how much we are spending but where it is coming from.

[Lord Altrincham (Con)]

I thank the Minister for her patience in hosting this Committee. I will comment on my Amendment 52 and the other amendments in this group with specific reference to the financial agreement, where there seems to be ambiguity regarding the cost of this project. There clearly has been some ambiguity in the supervision of the contract, which may be because of the prerogative and lack of parliamentary participation, but this is a very large financial commitment to slip through under the prerogative and it is reasonable that we take a hard look at the contract itself in Parliament. That is why my amendment suggests that it goes back to the House of Commons.

The contract provides for two kinds of payments. It provides for 13 years of fixed payments of £2.3 billion. That is the easiest part of the contract to understand. If noble Lords wish to think of it in present value terms they might be a bit less than £2.3 billion, but those payments are nevertheless fixed and there is a schedule for when they are paid, albeit the Government appear to have offered the Republic of Mauritius the possibility of accelerating those payments.

Those payments take us to year 13. At year 14, the contract is linked to inflation. From here on, the payments are not just unknown but uncapped. That is a remarkable thing for the Government to offer. From year 14, the payments increase with inflation. No one knows what that will be; it could be very large. Therein lies the ambiguity in the approach to how much money is at stake: it is because the Government are offering the Republic of Mauritius the remarkably valuable asset of exposure to UK inflation from years 14 to 99. This is an almost unheard of contract. Incidentally, it is the same kind of financing error that His Majesty’s Treasury has made in linking so much of our gilt issuance to inflation. This itself has been the financial constraint on the Chancellor in recent months because of our exposure to the linkers, which have all moved up with inflation. It is an error that the Treasury has made before, so why is this contract linked to inflation?

I will take a look at what that actually means. The important numbers are the actual numbers that will be paid—nominal numbers—so let us not worry about the inflation adjusted and present value calculation. The actual numbers are those that will have to be funded by taxpayers in the future. If we go from year 14 and imagine a world of 2% inflation for the rest of the century, the Government will have to fund the Republic of Mauritius another £28 billion. At 3%, they will be funding £50 billion. At 4%, it will be £90 billion and at 5% it will be £174 billion.

Where do we go with these numbers? What do they really mean? How can we be comfortable with this kind of exposure? The first answer is that it is a very unusual kind of contract; it has no cap to it and provides enormous exposure to the UK over time. But in terms of just rough numbers, what does that mean? Trading in UK inflation through the gilt market indicates that, for the next 30 years, UK inflation will be around 3%, so it may be at the lower end. But if you look at other examples of where UK inflation has been over the last 100 years, there really are no suggestions that it is below 5%; it is more like 6% or 7%. Remember, it was over 10% only a couple of years ago and over 20% in the 1970s. Rolling forward at 100 years above 5% is probably a reasonable place to be.

Let us take it to be in the 3% zone, which would be very low and benign for the Government. If we then take one of the present-value calculations, we find that there are no scenarios in which this contract is worth less than £15 billion—and at £15 billion it is still uncapped: it is not as if it has been hedged, financed out or closed out in agreement with Mauritius. It still leaves the Government with all the exposure, so it is a remarkable contract in that form.