CONFIDENTIAL
MINISTRY OF DEFENCE
Main Building Whitehall London SW1A 2HB
Telephone 01-218-77% (Direct Dialling)
01-218 0000 (Switchboard)
137)
B Dinwiddy Esq
HKLOD
Foreign & Commonwealth Office
Des Bruce,
Hong Kong
We spoke
+
Li
NEX:
REF.
Your reference
Our reference
D/DS1/303/10/9
Date
April 1975
2. During one of the meetings of the Hong Kong Working Party the Colonial Secretary asked whether we would be able to give any indi- cation of the likely cost of the Hong Kong garrison at April 1976 prices ie the effective date of the new defence contribution, My initial reaction was that the rate of inflation would be very difficult to predict, but that I was not sure of the relevance of April 1976 prices because Hong Kong Government estimates for 1976/7 would be based on prices ruling in the Autumn of 1975. I promised, however, to seek advice on my return to London.
3. I have now discussed the subject with John Hansford in Treasury and, as I suspected, we are not able to make any sort of prediction and we can only give a very negative sort of reply. As you know we have agreed that the cost of the garrison, and hence the Hong Kong Government's contribution, should be revalued annually in line with the movement of a composite index, made up of the various agreed UK and Hong Kong pay and price indices. The UK indices are published regularly and with their knowledge of their own price changes, the Hong Kong Government should have no difficulty in updating the forecast of their contribution to a current price basia.
4. The negotiations later this year will be based in 1975/6 estimates prices (ie those ruling in September 74), but if it would help, we could provide the Hong Kong Government with our best estimate of the cost of the garrison at 1976/7 Estimates prices in the autumn as soon as our own sketch estimates have been prepared. As I have already mentioned to the CS, however, the price base for the defence contri- bution should be kept in step with other Hong Kong Government estimates.
5. We discussed how best to pass this information to Hong Kong and agreed that if possible, the Governor, from whom I think the request originated, should be advised informally during his short visit next week. If this proves impossible we agreed that you would send an