Will the Chagos deal cost the UK £3.4bn or £35bn?published at 11:07 GMT
11:07 GMT
By Ben Chu
Last year, BBC Verify looked into whether the UK government is right to say the Chagos deal will cost £3.4bn.
The Conservatives have claimed the agreement will cost £35bn and have cited a Freedom of Information release from the Government Actuary’s Department from 2025, which they said shows their figure is right.
So which figure is correct?
The Conservatives are not wrong in pointing out that the cumulative value of the annual outlay in cash terms over the 99 years of this deal could easily add up to £35bn.
The government has reached its significantly lower figure by adjusting these cumulative payments for:
Future inflation
Something called “Social Time Preference” – the value society attaches to something in the present compared to the future, so the future costs and benefits are discounted to their present value
The inflation adjustment is valid. A payment of £1bn in 2124 will be considerably less onerous for a future government than a payment of £1bn made in 2025, given the likely considerable growth of the economy and tax revenues over a century.
Also, given the extremely long timeframe of the deal, analysts and actuaries consulted by BBC Verify say it is not unreasonable for the government to further discount the payments for Social Time Preference – given that studies of economic behaviour, external, external show immediate costs and benefits are valued more highly than future costs and benefits by individuals, businesses and governments.
