CONFIDENTIAL
6. The Chinese have not reacted to our briefing of them on the broad outlines of our approach. This, and Hong Kong's advice that deferred access to the compensation would be deeply unpopular and could prejudice sensible consultations, have led us to conclude that we should drop this aspect, ie payments would be made over when they were due. This tactical change has no implication for the cost of the scheme. But it will make it a great deal simpler to administer.
7.
We have also thought carefully about the question of the contract officers who if they decide to switch over to permanent and pensionable status would be eligible to become HMOCS members. We and the Hong Kong Government have a strong interest in ensuring that as many of these contract officers as possible stay in Hong Kong. But we have looked at ways of trying to prevent or discourage them from joining HMOCs, so as to reduce the size and cost of the HMOCS problem, whether we define that problems as limited to compensation and SPOS, or whether sterling safeguards are included too.
8.
We have concluded that it would be too dangerous legally and politically for us unilaterally to close the door on HMOCS membership without offering the officers concerned some compensating improvement in their conditions of service, ie an improvement in their contract terms probably an increase in the terminal gratuity payable.
9. We have pressed HKG on whether they could make such an improvement. However the clear conclusion is that in Hong Kong terms these officers are not a discrete group. Even if no action were taken with regard to the few officers outside the police force who are on these terms, HKG would be obliged simultaneously to improve the contract terms of the over 300 police officers who have been recruited since the eligibility to apply for HMOCS was removed. Moreover, to avoid allegations of discrimination in favour of expatriates, Finance Committee would very likely insist that there should be simultaneous improvements in the conditions of service of local officers on pensionable conditions, with repercussions for other civil servants particularly the other disciplined services. This would make such a move very costly and controversial for HKG but, more importantly from the UK point of view, would mean that the improvement in contracts could not be held to be in any sense a compensation for loss of the right to join HMOCS, since others who had not had this right would be receiving a similar improvement.
10.
It is worth repeating that Hong Kong have taken action where they can to retain key staff, and they will continue to do so. For example there have been improved packages for judges (to persuade more local members of the Bar to become judges) and for local civil servant lawyers (because it is proving almost impossible for the Legal Department to keep local lawyers who can earn substantially more in private
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CONFIDENTIAL