CONFIDENTIAL
compensation/incentive scheme.
With Treasury concurrence FCO/ODA officials held consultations with HMOCS officers in Hong Kong from 7-11 May.
6.
Unfortunately these consultations revealed that our proposal is now inadequate. It falls far short of the reasonable expectations of HMOCS officers. Although Hong Kong's economic prospects have continued to improve since 1988, the political picture is different, and we can offer HMOCS officers no assurance that the operations of the administration and police will be shielded from Peking's influence after 1997. We can no longer justify a proposal which would effectively compel many officers either to serve on after 1997, against their wishes and their consciences, or to leave with only 10% of the compensation traditionally payable. Moreover in terms of incentive, our priority is now to induce officers to serve at least until 1997, rather than for any long period thereafter.
7.
We have therefore looked at alternative options and have concluded that we must now move to a position to which we can stick, ie a scheme on traditional lines. The details are attached. The cost would be about £8m pa (in 1992 prices) over 5 or 6 years from 1997. (We should have liked, in the spirit of our original proposal, to add an additional inducement for those who serve on for a few years after 1997, but this would increase the costs, and we do not consider it essential.)
8.
This would be an additional charge on the ODA's Superannuation vote (which is not cash-limited) and would require new resources: the Chief Secretary accepted in 1988 that the scheme would not be a proper claim on the Aid budget. Nor should it be at the expense of Diplomatic Wing activities.
Sterling safeguard
9. The Treasury and we agree that, because of past Ministerial statements and practice (the so called Carr- Robertson agreement), HMG already have a contingent liability to take over the payment of Hong Kong HMOCS pensions in the event of a default after 1997. cost of this at the present exchange rate could reach a peak of nearly £19m pa in the year 2011.
The
10. However the Treasury do not at present accept that we should also recognise a contingent liability to protect HMOCS pensioners against a fall in the value of the Hong Kong dollar. In all 42 other cases since 1954, the sterling value of HMOCS pensions has been protected, in one way or another, after British rule ended ; we believe we must provide similar protection for Hong Kong HMOCS pensions by undertaking to pay supplements if the dollar falls in value. The cost in the peak year (2011) if the Hong Kong dollar were to slump to say HK$ 24 = £1 and if we had fixed the trigger rate at HK$16: £1 (the present exchange rate is $14 = £1) would be about £5.5m pa. (So long as the Hong Kong dollar remains
CONFIDENTIAL