S SECRET SPERET
of 30 to 32% not 48 to 50% (assuming that LOA would be reviewed
regularly). Even at 30%, differential inflation remained a worry and would almost certainly occur in the early stages of the agreement but would not necessarily be there indefinitely. Although clauses 9 and 10 of the agreement provided for information to be called for and for review, differential inflation was
still a matter of concern to Hong Kong.
5. The Financial Secretary said that there was some small
comfort in the fact that UK costs would not escalate much
between now and 1 April, 1976, since, as far as pay was concerned, October to March was not a pay adjustment period.
6.
The Financial Secretary said that the discussions had
confirmed that the statement of working principles for financial arrangements would have to be considered carefully. This would be critically important for the amicable implementation of the
agreement over the years.
7. The Financial Secretary concluded that, though there was the possibility of some marginal reduction, nothing that had been done in the working party would help to make a 75% share
of costs more acceptable to Hong Kong. There was not much
scope for getting the total figure down, although Hong Kong's worry over differential inflation had been somewhat reduced. Mr Andrew agreed that the Financial Secretary had given a full summary of the procedures of the working party.
8. The Minister of State asked what working figure should now
be used as a basis for further discussions in the light of what the Financial Secretary had reported. It was agreed that, with the pruning now in hand, $450m could be used as a target figure.
9.
The Governor then asked the Colonial Secretary to report
on the deliberations of the working party on land. The Colonial Secretary said that the group had examined the possibility of the release of 5 pieces of land in the urban areas:-
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