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of the costing it had been concluded that it might be possible to reduce the total a little. In addition to the reduction of $5m per annum in respect of the change from the frigate to the five patrol craft, there were four areas which it was thought were worthy of further examination, but he was not particularly optimistic as to the result. These were:
(a) Straight economies: Signals
B
both personnel and
equipment and EME were possible targets:
J
-
(b) Substitution of local resources: This might be
possible as regards education and medical (in addition there was the question of credit for private fees received in respect of the former);
(c) Reallocation of costs: There might be some element
of the Gurkha training costs which should not be shared:
(a) A separate inflator: It had been agreed that a separate inflator should be applied to the air- trooping item, which was at present inappropriately, included with equipment from the UK.
3. Arising from discussion on the capitation charge the Financial Secretary said that it had been agreed that a balance sheet should be drawn up of those items for which neither side charged the other. Hong Kong did not claw back income tax or national insurance; and did not charge HMG rates, interest on capital works or landing fees at the airport. The UK did not include higher formation costs, pensions and UK training; the cost of new equipment was spread over a period of years and not amortised, whilst old equipment was taken on without charge.
4. On the question of inflation, the Financial Secretary accepted that Hong Kong had over-estimated the sterling component. It was now agreed that it should be of the order
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