SECRET
D
E
XCS(71)12
4
are attached:
2
(b) that HM Government would be willing to reduce the contribution below £49 million if during the period Hong Kong's economy suffered such serious adverse change that the continued pay- ment of £7 million a year could be shewn to be an unreasonable burden on the Colony's finances.
For the record, copies of all the correspondence exchanged
(a) as Annex D, the reply sent on the 24th March
1971 to the Unofficial Members' memorandum;
(b) as Annex E, the Administrative Secretary's
letter of the 1st April 1971;
F
(c)
G
5
as Annex F, the reply sent to this letter on the 25th May 1971; and
(d) as Annex G, the Administrative Secretary's
letter of the 27th May 1971.
The subject was again discussed in Council informally on the 1st June 1971. During the discussion it was pointed out that a wide gap remained. What had been suggested in the letter of the 27th May was £49 million over seven years. What was expected (even assuming agreement to an extension from a five to a seven year period at an unchanged annual rate) was £59.5 million. Strong doubt was expressed by the Governor about the possibility of obtaining so large a reduction. He also pointed out that the capital programme over seven years was expected to cost £19. 5 million, not £17 million: which was the five year figure. In discussion, it appeared that some Unofficial Members might be ready to support an average contri- bution of £7.5 million over the next seven years £7 million in each of the first two, £7.5 million in each of the next three and £8 million in each of the final two. The total would then be £52, 5 million, which could be regarded as the £49 million offered, plus the further £2, 5 million needed for capital works, plus another £1 million. Unofficial Members stressed however that they could give no undertaking about the views of the Unofficial Members of the Finance Committee of the Legislative Council.
6
It soon became apparent to the Governor whilst he was in London during June that a settlement on the basis of £49 million over seven years would not be acceptable. He therefore proposed as an alternative the formula outlined in the last paragraph. He was told that the proposal would have to be put to Ministers.
H. M. G's Views
7
Ministers were unable to reach any view during his visit, but he has now been informed that they are not prepared to consider any settlement less in amount to one equivalent to £8 million year over a period of five years.
SECRET