1
SECRET
DEFENCE REVIEW: HONG KONG
1.
The Governor of Hong Kong was asked to consider whether Ministers' decision, that Hong Kong should pay three-quarters of the cost of its defence forces, should be conveyed directly to his Executive Council, or whether we should initially ask for more and compromise on 75%. He has advised that he could not, with any chance of success, put this to Executive Council in either form, on the basis of the present estimate of £38 m. annual cost for the forces in Hong Kong. This would mean asking the Hong Kong Government to pay at least £28.5 m. per year - an increase of 350% over their present £8.5 m. contribution. the Governor's judgment this is not negotiable.
2.
In
Even if the cost could be reduced by further economies to around £34 m., he considers that three-quarters of this (£25.5 m.) is more than Hong Kong could pay.
3.
He therefore concludes that the cost must and could be reduced to less than £30 m., largely by reducing the garrison from 63 to 5 major units. Three-quarters of the cost of such a reduced force would be nearer a viable political and budgetary proposition in Hong Kong.
4.
The FCO agree with the Governor's assessment of the situation in Hong Kong. If Ministers' requirement of a 75% contri- bution is to be met, the level and cost of the Hong Kong forces will therefore need to be reviewed by the Ministry of Defence. We recommend that we should inform the Steering Committee that such a review is being put in hand now. Any submission to Ministers should explain this review.
5. The Governor has also recommended that consultations with the Executive Council for this major increase in defence contri- bution should await finalisation of the 1975/76 Hong Kong budget, which will need to include substantial new taxation and borrowing
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