Mr. Royle
SECRET
"Hong Kong Dept
HONG KONG DEFENCE CONTRIBUTION
You are already aware that the Governor has told us that the maximum amount that he is likely to be able to extract from his unofficial advisers'on EXCO is £8 million per year for the next five years. You agreed, I understand, with Sir L. Monson's view that the Governor is right on this and that we should try to persuade the rest of Whitehall to agree to the Governor going ahead on that basis.
2. Sir L. Monson met with representatives of the Ministry of Defence, Treasury and Ministry of Public Building and Works and the outcome was that MOD and Treasury in varying degrees thought
(a). that Hong Kong could afford more;
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(b)
that it was not unreasonable to provide in some way for the inevitable increase in the cost of certain items during the currency of the agreement and that this should be provided for.
We contested (a), but thought that there was some force in (b). We have since been negotiating the text of a letter to the Governor and reached agreement yesterday.
3. I attach for your information the text of my letter to the Governor of 2 October, together with the text of a personal letter, which the other Departments will not see, in amplification. We particularly want him to know that we will support him on the £8 million figure if he reiterates that this is the maximun he can extract. Incidentally my reading of the Governor's original letter is that the sum of £8 m. is not related except in a general way to the costs, detailed figures of which he did not have when he wrote. The fact that the garrison is to be held at 63 major units would justify his lowering his offer, but in fact the latest figures show that the cost has gone up as a result among other things of new military rates of pay. I hope and believe - that despite these charges the Governor will still stick to the £8 m. as the figure he can put over.
4.
The next agreement runs from April 1971. I don't imagine that the Governor will be able to do much more to pursue this till his return from leave, but it would be a good thing if he could do some sounding before he comes on leave so that he can give us firmer ideas whether his estimate of £8 m. is likely to be realisable. Incidentally Lord Shepherd said to me the other day that he didn't think we'd get more than £7.5 million out of the Government;
Sir L. Mons on
Hong Kong Department
(K.M. Wilford)
2 October, 1970
SECRET