CO537-2188 — Page 11

The Secretary of State's minute seeking the Prime Minister's approval for making the statement has also gone off, and as the matter has been cleared with the Lord Privy Seal, I understand that there is not likely to be any difficulty from this point of view.

So far as concerns the Treasury, I went over to discuss the matter with Mr. Helsby and Mr. Serpell this morning. They entered a general protest (for which I, personally, thought there was some justification) about having been brought into this matter so late in the day, but they did not press the point unduly and went on to their main comment, which was that they would have liked to see some reference to the financial aspect in the proposed statement. They thought that

the financial aspect was bound to be raised and they were anxious to make sure that nothing was said inconsistent with Hong Kong's position as a loan-aided territory. I managed to resist the proposal to include something on the financial aspect in the statement, but I promised that if they would let me know what they would like to see said on this point, if it is raised, I would certainly see that it was included in the Secretary of State's note for supplementaries. I think that what they have in mind is something to the effect that the financial arrangements had yet to be worked out, but that they would of course have to take into account the fact that the territory is at present in receipt of assistance from U.K. funds.

Mr. Helsby was also critical of our action in expressing the view that commercial auditors were preferable (paragraph 3 of No.4) without first seeking Treasury views. The Treasury dissent from this view and feel that the Colonial Audit Department should do the job.

Mr. Helsby also stressed that the Treasury would wish to be kept closely in touch and to be consulted at every stage regarding the detailed financial arrangements as between the Central Government and the Municipality.

I took