CONFIDENTIAL
2
2.
Exchange Rates
The U.K. side explained that the pound sterling cost of the garrison had been determined by calculating the Hong Kong dollar cost converting from pounds sterling in respect of items of cost determined in sterling at an appropriate rate of exchange (e.g. the Forces Fixed Rate in respect of pay and allowances), and converting back to sterling at the market race. It was noted that with regard to the sterling component of costs there was a balancing effect to the extent that exchange rates reflected differential inflation. It was accepted that the exchange rate risks were neutralised for both sides.
3. Costs
(a) Royal navy. It was noted that the cost of the
proposed garrison in Hong Kong dollars could be reduced by $0.5 M per annum now that the 5 patrol craft option had been selected but that no provision had been included for replacements for the patrol craft which would become necessary in about 1983. The U.K. side said that HMS Mermaid would remain in service and could theoretically be deployed to Hong Kong if required.
(b) Battalion strength. The U.K. side said that keeping
the strength of the U.K. battalion up to its establishment would not be a problem following a reduction in the establishment of a U.K. battalion and the satisfactory rate of recruitment. Personnel figures would be reviewed regularly and annual returns would be sent to the Hong Kong Government.
(c) Movements, air trooping, hirings, equipment. It was
noted that the cost of these items had been apportioned to units except where shown separately. In total, movements accounted for £1.2 M or $12.9 M. Air trooping accounted for 1.5 M or $15.8 M, and hirings 0.7 M or $7.4 M. Equipment costs were 1.5 M or $15.8 M for new capital equipment and E2 M or $21.1 M for the maintenance of existing equipment. Earlier figures
had been reduced by the exclusion of guns for the artillery battery.
(d) Air trooping. The estimated cost was based on air
charter although it appeared likely that the service would continue to be carried out by the R.A.F.
(e) Capitation rates. It was noted that, in respect of the Army, pay and allowances were calculated on the basis of a capitation rate which included only basic pay plus personal allowances (e.g. education). was netted by receipts from ration and accommodation charges.
It
CONFIDENTIAL / 3.