CONFIDENTIAL
4.
is:
5.
The gap between the Treasury and Foreign Office proposals
for the compensation scheme, some £2 million a year for
6 years starting in 1997, amounting in total to
£15 million;
for the safeguarding scheme, contingent liabilities
payable only in the event of the collapse of the Hong Kong
dollar or default by the Chinese government amounting in
total to some £150 million payable over 50 or more years
with a maximum liability of £20-25 million in the projected
peak year of 2007/08.
The central issue is whether the additional costs and
contingent liabilities. of the Foreign Office proposals are
affordable in public expenditure terms and would produce
commensurate benefits in ensuring a smooth transition. That must
be a matter of judgement; the Governor argues that the Foreign
office proposal is the minimum honourable settlement.
6. If Ministers wished to reach a compromise, the design of the
schemes is such that virtually any intermediate sums could be delivered (by varying the multipliers for the compensation scheme
or the exchange rate for the safeguard scheme). An alternative
approach for the safeguarding scheme might be to calculate
payments differentially for different groups rather than averaging across all staff. This would allow, for example, more
generous terms to be offered to the lower paid groups
(principally the police). Once agreement is totals, officials could produce options very quickly.
is reached on the
PF OWEN
Cabinet Office
CONFIDENTIAL