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grip on the several hundred members who attended the association's inaugural meeting last week; but we cannot expect this restraint to continue. Already last week there
media were press reports of some of these top expatriate civil servants, judges and police officers voicing publicly their
lack of confidence in the Joint Declaration. We have all
the ingredients here for a messy political row which may
break in the next few weeks and which we shall not win.
6. In these circumstances I am persuaded by the strong advice of the Governor of Hong Kong (which he may have put to you directly during his recent visit here) that we should
untie our package and proceed piecemeal: we should continue to make as rapid progress as we can on sterling safeguards,
but we should make an immediate announcement about the
compensation scheme and the SPOS adjustment. I hope you can agree to this and to Lord Caithness' taking action accordingly when he visits Hong Kong in the week beginning
17 February.
7. On the compensation scheme, our detailed proposals have
hardly changed since Ministers agreed the scheme in principle in 1988. In brief we propose that the actuarial factors used to calculate compensation should be roughly half those used in traditional schemes for Dependent Territories and that payments should be phased over 8 years to give an incentive to officers to stay on in Hong Kong public service: an officer retiring in 1997 would receive only 20% of the maximum sum payable, an extra 10% would accrue for each year he stayed on. At the present
exchange rate of HK$14: £1 we now expect the cost to be between £20 and £30 million spread over 8 years (the maximum would be about £39 million; the minimum about £
4
£ million). A period of consultations with the staff associations must precede finalisation of the scheme. We
shall also want to brief the Chinese.
8.
SPOS is much less significant in financial terms: about
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