📣Excited to say that my book “Exile Economics: What Happens If Globalisation Fails” is officially published today by Basic Books! 📣.

The Conservatives have accused the government of a "cover up" of the true costs of the Chagos deal with Mauritius, and of using an "accounting trick". Here's some context 👇.

Join millions who have switched to Grok.

E.g in her 2024 Budget speech Chancellor Rachel Reeves boasted of a £22.6bn increase in day-to-day health spending - but official documents confirmed this was an increase only in cash terms and would be spread over two years. ENDS.

This leaves them open to the charge that they present figures in an inconsistent way depending on what suits them. 21/22.

However, it's also worth noting that government ministers often use cash figures when they want to emphasise the size of an increase in spending on popular public services such as the NHS or defence. 20/22.

". It seems very hard to resist the argument that it doesn’t equally apply to a government because essentially the obligations the government is taking on are obligations on behalf of you and me.". 19/22.

“. and not only that, if I said I was going to give you £10 in ten years’ time I can sell that obligation to someone for quite a lot less than £10 and that gives quite a strong argument for what the government is doing to my mind. " . 18/22.

The economist and former director of the Institute for Fiscal Studies, Sir John Kay, told me: . "If I ask, would you rather have £10 now or £10 in ten years' time I'm pretty sure what answer you would give - this is a real phenomenon. ". 17/22.

Studies of economic behaviour show that immediate costs and benefits are valued more highly than future costs and benefits by individuals, businesses and governments. . 16/22.

Also, given the extremely long timeframe of the deal, analysts and actuaries I’ve spoken to say it is not unreasonable for the government to further discount the payments through STPR. 15/22.

However, the government is also justified in stripping out expected future inflation, especially as this is a very long-term payments deal. A payment of £1bn in 2124 is considerably less onerous for a future government than a payment of £1bn made in 2025. 14/22.

So which figures are right? . As the above shows, the Conservatives are not wrong in pointing out that the annual cash outlays under this deal, factoring in long-term inflation of 2.3%, could easily add up to £30bn plus. 13/22.

So this is, in a nutshell, is what the government has done. - Cash payments = £35bn .- After adjusting for inflation = £10.2bn .- After adjusting for social time preference (STPR) = £3.4bn. 12/22

If you apply those official Green Book discount rates to the Chagos payments that works out as: . - £2.5bn in years 1-30 .- £798m in years 31-75 .- £154m in years 76-99 . Adding them together, gives a total of £3.4bn - the figure claimed by the government. 11/22

These are the standard discounting rates used by the government in its official Green Book - although it's important to note other analysts and economists could reasonably use different ones and therefore come up with different figures. 10/22.

The government discounted the annual payments owed using different rates over three time periods: . - 3.5% for the first 30 years of payments .- 3% for payments in years 31-75 .- 2.5% for payments in years 76-99. 9/22

This is on the basis that a bill that does not need to be paid in full until far off in the future is less onerous than one that needs to be settled today. The STPR is used to put a Net Present Value (NPV) on those expected future costs. 8/22.

But the government has done another adjustment on top. It has taken the £10.2bn figure and applied something called the Social Time Preference Rate (STPR) to it - an accounting device to adjust the value of a future financial commitment by the state. 7/22.

So how have ministers come up with the much lower figure of £3.4bn? . First, by adjusting those payouts by the OBR's inflation forecast to get a real terms cost in each year. That shows an annual average £100m payment & cumulative total of £10.2bn over 99 years. 6/22

The Office for Budget Responsibility has an assumption that long-term inflation will be 2.3%/year. Applying this to the relevant cash payment figures in the deal and adding them up over 99 years gives you a cumulative bill of around £35bn. 5/22

Plus: . - a one-off £40m payment into a trust fund for the benefit of the Chagos islanders .- an annual grant of £45m to support projects for the economic development and welfare of Mauritius from years 4 to 29 . Full details 👇. 4/22.