CONFIDENTIAL
The Trigger Level
6.
There is one issue where we will probably have to give some ground to the Treasury. We have long known that if the
Treasury agree to a sterling safeguard on traditional lines,
they are likely to argue that the safeguard should only come into effect at a rate considerably below either the current
exchange rate or "historical" rates. The current exchange
rate is HK $12.5: £1. The 1991 average was HK$13.76:£1. Before 1967, the Hong Kong dollar was pegged at HK$16:£1;
Government Actuary Department have now done work for the
Treasury which shows that, to eliminate the differential
between Hong Kong and UK civil service salaries, a "fair" rate
would be approximately HK$22:£1. We believe this assessment
to be reasonable. But because there is no uniform
relationship between HK and UK salaries, certain groups would be able to demonstrate that they had been treated unfairly by
a single trigger at this level. If the differences in the rate at which pensions are earned in the UK and Hong Kong are also taken into account (which they never have been elsewhere) the rate could be considerably higher, possibly in the region
of HK$30:£1.
7. The HMOCS Association will be expecting pensions to be
safeguarded at either a current rate or an historic rate:
they would be shocked to know that consideration was even
being given to a rate above HK$16:£1. But we would be
hard-pressed to sustain the argument, on the basis of this new
evidence, that 16:1 is justified when compared with the levels
of pension earned by UK civil servants.
hk.arr.ADM
SLM
CONFIDENTIAL
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