CO537-2188 — Page 57

to it, especially in the fairly early stages of its career, such wide powers. As is stated in' Mr. Roberts-Wray's minute of the 14th April, it is quite normal for a Municipal Council to be subject to the general directionsf a Central Government authority. In fact,/Mr. Roberts-Wray' minute shows, we shall be exempting the

Hong Kong Municipal Council from certain forms of control that are normal in this country. Moreover, as the Municipality will be responsible for only the urban area of the Colony, it seems to me there must be some central authority capable of ensuring, and if necessary insisting, on proper co-ordination as between the Colony's urban and rural areas for the policy and administration of all social services.

4. In regard to matters of taxation, Mr. Roberts-Wray's minute of 14th April also draws attention to the important constitutional principle involved, namely that control of taxation should be retained in the hands of the Colonial Government. I must confess that I can foresee the possibility of sudden changes in taxation policy, and possible conflicts between the Municipality and the Central Legislature, if the latter were to surrender to the former any rights in regard to taxation beyond the very limited functions now prescribed in paragraph 3(i) of the draft despatch. I would repeat also that I do not think there is mmmmm chance of the Treasury accepting such a proposition in present circumstances, and here, perhaps, I should mention that it emerged clearly from our discussion that Sir Mark Young was not aware that Hong Kong will remain for some time under pretty strict Treasury control.

5. Whilst, therefore, I feel it may be somewhat presumptuous to dissent from views expressed by Sir Mark Young, especially in view of my short acquaintance with Hong Kong affairs, I do venture the opinion that we should stick to the orthodox and rather more cautious policy of stipulating that the method of handing over of functions to the Council should be one of delegation rather than transfer, with all that that implies, and that the Council should have discretion in regard to the levying of rates, but no discretionary powers in regard to taxation. In expressing this view I cannot refrain from calling to mind Sir Mark Young's confidential despatch at No.70 on 54145/4/46 Part 2, which indicated in paragraph 10 that there can be no doubt or question but that there will be corruption when the people of Hong Kong take a larger share in the administration of their own affairs, and drew attention in paragraph 6 to the fact that there can equally be no doubt that Chinese political parties will seek to use the Municipal Council for their own ends. On this latter point, I should perhaps mention that our latest and entirely unofficial) information from

Hong Kong is that the Kuomintang is now guaranteeing the election of any prospective Councillors who will agree to ride in on their ticket.

6.

I submit two drafts opposite, one to Sir Mark Young and one to Sir Alexander Grantham,

for