Government has no idea how it will pay for £9bn cost of Chagos deal

A senior Treasury minister has admitted that the government does not yet know how it will pay for its controversial deal to hand over the Chagos Islands to Mauritius and lease back the UK/US air base on Diego Garcia.

In a written answer, chief Treasury secretary Darren Jones, Rachel Reeves’ number two, revealed that spending has not yet been allocated for what sources have claimed could be a £9 billion bill.

A second written answer from foreign office minister Stephen Doughty suggests it could come from the under-pressure defence budget - at a time when it has been reported increasing defence spending to 2.5 per cent of GDP could be delayed until 2032.

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The latest concerns about the Chagos agreement come amid signs that President Donald Trump could try to veto the deal because of fears about the impact on the Diego Garcia base.

There are worries too that China could get a foothold on the islands and that there would be an embargo against taking nuclear weapons there.

An initial deal with the former Mauritius government in 2024 had to be renegotiated following the election of a new government in the former colony, with the prime minister Navin Ramgoolam saying it was “not good enough”.

The UK government has so far refused to publish the details of the deal but has insisted it is “good” and guarantees the future of the base for another 99 years.

Responding to Tory shadow defence minister Mark Francois on where the costs of the talks and deal would be met, Mr Jones said: “The direct costs of negotiation are owned and monitored by the Foreign Office (FCDO) and Ministry of Defence (MoD), and have all been met from within their budgets. Policy impact assessments are similarly owned by the FCDO and MoD.”

But crucially he made it clear that costs of the paying for the deal had not been allocated yet and will need to come from within the government’s future budget and spending limits.

He said: “Any financial obligations arising from the finalised agreement will be managed responsibly within the government’s fiscal framework, including through the upcoming spending review.”

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In his response to Mr Francois, Mr Doughty said: “Costs, including those of staffing, legal counsel, travel and accommodation and other expenses arising from the negotiations have been incorporated into the budgets of those departments involved in the negotiations. There has been no central aggregation of those costs.”

Mr Francois, the shadow armed forces minister, warned the costs could have a significant impact on defence spending which is already under pressure.

He said: “When the defence budget is already under immense pressure not only do the government not know exactly how much it would cost us to rent back our own Islands, they don’t even know which department would pay for it. If the rumoured figure of up to 9 billion is true, this is even more mad financially than strategically.

“Let’s hope Team Trump put them out of their misery on this, sooner rather than later.”

It comes as Sir Keir and his Mauritian counterpart, Navin Ramgoolam, have spoken directly for the first time about the Chagos Islands deal.

The prime minister told Ramgoolam he wants "strong protections" for the UK-US military base on the island chain as talks to hand them over to Mauritius continue.

Sir Keir and the Mauritian leader spoke on Friday afternoon, Downing Street said, the first time the two leaders have done so directly since they both came to power.