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Item 5
Defence Matters
(a) Defence Contribution
The Governor considered that negotiation of the new defence
contribution would not be less difficult than in 1966. Some
unofficials would take the view that the necessary contribution should be found towards the maintenance of an adequate garrison;
others would be less well disposed and might argue that the loss of some £60 million suffered by Hong Kong as a result of the devaluation of sterling should be regarded as offsetting the defence contribution for several years ahead. He would need to deploy different arguments in "selling" an enhanced contribution in Hong Kong from those which might be used in presenting it in Whitehall. He hoped that, despite this difficulty, it would be possible to arrive at a figure which the Hong Kong Government could agree upon as representing a fair offer by them to meet their share of the costs and which would be acceptable to Her Majesty's Government. The Governor considered that the absolute maximum contribution for which he could obtain acceptance in Hong Kong would be £7 million per annum of which he hoped some £2 million might be classed as annual capital expenditure (the latter figure seemed higher than could be achieved).
2. In justifying and presenting a figure in Hong Kong he would not attempt to base it on the "local costs" of the garrison. He proposed to make out a case for increasing the current contribution and, in so doing, to deploy such arguments as :
(a) rising costs during the currency of the present agreement;
(6)
the increase by some 50% of the Colony's G.N.P. (on the basis that this could probably be maintained) justified some increase in their contribution: (c)
rising net expenditure by the Services in Hong Kong (from an estimated £5 million in 1966 to £7 million in 1969, although this included amounts spent on purchases of British goods).
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