96
was borne on United Kingdom funds subject to contri- butions from the Colonial Governments equivalent to their 1939 estimated expenditure on the forces plus 25%. On the other hand Hong Kong finances have not only met the full cost of the local volunteer forces including expenditure on their demobilisation at British Army rates of pay and allowances, but before the war Hong Kong, unlike the African Colonies, contributed towards the cost of Imperial Defence. Each of these questions (viz. expenditure in Mac&o, on volunteers, and on passages) will have to be considered separately. We had been under the impression that Hong Kong had treated such expendi- ture as "recurrent" 1.e. that the expenditure to date had in fact been met with the assistance of the "loan in sid" but it now appears that the expenditure has been charged to a suspense account pending a decision as to the incidence of charge (see copy of telegram No.589 enclosed.)
•
5. In the light of the position referred to above it seems to us that there are good grounds for supporting the Governor's request in paragraph 16 of his despatch No.48, repeated in paragraph 11 of his despatch No.164, for a grant from H..G. on the lines of the 230,000,000 grant to Malta. Before, however, considering the submission of such a proposal to the Treasury officially we should like to get, so far as possible, more precise information as to Hong Kong financial outlook for (say) the next five years including the revenue prospects, and a more precise estimate or the total "war damage compensation" bil2 and estimates of other special liabilities arising out of the war such as those referred to in paragraph 4 of this letter, without prejudice, to the decision as to ultimate incidence of charge of the expenditure.
/6. I enclose