Britain is languishing in 21st place in new “financial freedom” rankings while Mauritius – which will reap billions in benefits as a result of the deal which sees it regain sovereignty of the Chagos Islands from the UK – shares the top spot with Monaco. The rankings are another blow for Chancellor Rachel Reeves as she tries to sell the UK as an ideal destination for growth-igniting investment.

Conservatives have blasted Labour for signing a “surrender deal” which sees it lease back the Diego Garcia military base for £101million a year for 99 years – though Conservatives have warned the true cost could be £30billion. Mauritian Prime minister Navin Ramgoolam has said cash from the landmark agreement will be used for debt repayments with the country’s Budget exempting eight out of 10 workers from income tax.

Shadow Chancellor Mel Stride said: “The UK should be the best place in the world to do business, but under Labour, we’re falling behind and becoming less competitive.While British taxpayers fund tax cuts in Mauritius, we face tax hikes at home. This is the cost of punishing success. We must restore our competitiveness and back British business before it’s too late.”

Tax and immigration consultancy Nomad Capitalist scrutinised more than 200 countries, and it claims small, well-run states now outrank the old great powers”. The consultancy says Mauritius offers investors a “stable bridge between Africa and Asia”. Britain is criticised for “discouraging” entrepreneurs and investors with tax hikes and the removal of non-dom status.

The UK has been rated less competitive than countries including Portugal, New Zealand, Ireland and the Netherlands – and the blow comes as economists warn of the high chance of tax rises in the autumn Budget. Researchers marked the UK down for factors including increased red tape and higher taxes. In contrast, Switzerland and Portugal tie in third place.

The consultancy states Switzerland “remains the gold standard for predictability – efficient courts, low effective corporate rates and world-class infrastructure”.

Commenting on the publication of the Freedom Index, Nomad Capitalist Research associate Javier Correa said: “While the West still preaches liberty, countries like the UK and US have become poster children for bloated bureaucracy, rising taxation, and the mismanagement of public finances.”

The Republic of Ireland is in fifth place, “thanks to its low corporate tax rate, English-language common-law courts, and

Nordic-level civil rights scores, although high rents dent its lifestyle rating”.

The UK was “deemed second-rate in all categories aside from asset protection”. The United States came in joint 29th, alongside Australia and St Kitts and Nevis.

The Treasury was invited to comment.