PRIORITY
GAPS 440
CYPHER CAT A
RECEIVED th
REGISTRY No. 50
SECRET - 2 SEP 1975
(HKK 10/1)
FM FOREIGN AND COMMONWEALTH OFFICE C11820Z
SECRET
TO PRIORITY HONG KONG TELNO 668 OF 1 SEPTEMBER
DEFENCE COSTS: YOUR TELNO 797
1
k
244 (262)
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1. AFTER CONSULTING OTHER DEPARTMENTS, MOD HAVE THE FOLLOWING VIEWS ON YOUR TUR:
BEGINS:-
(A) YOUR PARAS 1-3. YOUR OFFICIALS HAVE NOW RECEIVED A BREAKDOWN OF THE £33.5M GARRISON BY INFLATOR CATEGORIES (YOUR TELNO 813 REFERS). WE SHALL NOT BE ABLE TO LET YOU HAVE THE DETAILED GARRISON - COSTS AT 1976/77 ESTIMATES PRICES 1.E. A SEPTEMBER 75 PRICE BASE UNTIL NOVEMBER, BUT BY THE USE OF INDICES AN APPROXIMATE FIGURE CAN BE ASSESSED, ON THIS BASIS THE ESTIMATED INCREASE ON THE SERIALS OF THE INFLATOR RELATED TO UK SUPPLIED INDICES (ITEMS 1,2,4,5,6) IS £4.5M OR ABOUT 25 PERCENT. THIS TAKES INTO ACCOUNT BOTH REAL INCREASES AND CHANGES IN EXCHANGE RATES,
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OUR COMMAND SECRETARY HAS DETAILS OF THE INDIVIDUAL INDICES AND HAS BEEN INSTRUCTED TO DISCUSS THEM WITH YOUR OFFICIALS, UNTIL THE SERIALS RELATED TO HONG KONG PRICE MOVEMENTS HAVE ALSO BEEN UP PRICED WE CAN ONLY GUESS AT THE TOTAL GARRISON COST AT SEPTEMBER 1975 PRICES, BUT WE WOULD EXPECT IT TO BE IN THE REGION OF £46M £42M. WE WOULD BE GRATEFUL FOR YOUR EARLY CONFIRMATION OF THIS.
THE VALIDITY OF THE INFLATOR CAN ONLY BE PROVED AFTER IT HAS BEEN IN OPERATION FOR SOME TIME AND THE MOU MAKES PROVISION FOR ADJUST- MENT. IT WOULD BE BETTER NOT TO ATTEMPT TO FORECAST OUTTURN PRICES UNTIL WE HAVE A FIRM GARRISON COST ON WHICH TO BASE THE INDICES, WHICH IN SOME INSTANCES ARE NOT YET AVAILABLE TO US.
B) YOUR PARA 4. WE CAN CONFIRM THAT THE ALTERNATIVE OPTION OF
5 PATROL CRAFT WILL REMAIN OPEN UNTIL THE COMPLETION OF THE FORTH-
SECRET
/COMING