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quarters would lose nothing whatever. A less equitable means of raising funds at the expense of the public service could hardly have been devised.

11. I assume, however, that the Commissioners' real intention is that officers now paying rent for Government quarters should suffer such increase of rent as would represent a sacrifice on their part as nearly as possible equal to that which officers entitled to free quarters and officers not in occupation of Government quarters would be called upon to make (that their rent, for example, should be increased from 6 per dent. to 12 per cent.) and it is in this form that I propose to discuss their proposal. Although less obviously inequitable in this form than in the form in which they have actually stated it, the proposal is certainly not one which I could for one moment recommend. The adjustment of the rates of rents and rent allowances to compensate for the differences in the expenses, for example, of officers in Colombo as opposed to officers renting private bungalows, and of married officers as opposed to bachelors, is a matter of some delicacy. The present system of rents and rent allowances, though far from achieving perfect equity, is the best system that the Government has been able to devise after many years of trial and error, and it does at any rate establish a reasonable equality in the positions of officers. To sweep aside the whole system would immediately revive the crop of anomalies and inequalities which the system was devised to eradicate. To take a single example, a married officer renting a private bungalow in Colombo would no longer receive any compensation whatever for the difference between his unavoidable expenses and those of a bachelor in private quarters in an outstation: a difference at present recognized and adjusted by the provision of rent allowances representing 15 per cent. and 5 per cent. respectively of their salaries. The Commissioners' scheme would result in one officer making a sacrifice of 15 per cent. and the other of 5 per cent. The Commissioners have apparently given no considera- tion to these difficulties. They have also ignored the fact that many officers have had their salaries fixed with direct reference to the fact that they are entitled to free quarters. If they are now to be compelled to pay rent, it will be necessary to revise their salaries

12. Even if it were to be assumed (an assumption which I am not at present prepared to make) that circumstances justified my acceptance of the Commissioners' single argument in favour of their proposal, namely, that it is imperative to save a further three million rupees immediately by reduction of the emoluments of officers now in the service, I should contend that a far more equitable means of raising the sum required would be to impose a further graduated levy on salaries. The levy has at least the merit that it creates no obvious anomalies and, in the form in which it is now imposed, falls least heavily on the lowest-paid officers; whereas (and perhaps this is the strongest objection to the Commissioners' proposal) the abolition of rent allowances, besides being totally inequitable, would on the whole fall less heavily on the higher-paid officers by reason of the operation of the maxima prescribed in Finan- cial Regulation 976 (ii). I do not consider that there is at present any ground for holding that a further three million rupees must immediately be levied on the emolu- ments of the public services, and if I did I should certainly not support any proposal to raise that sum by the inequitable method suggested by the Commissioners.

13 I have so far dealt with the proposal to suspend rent allowances only as an "mergency measure. But Section 15 of the report makes it clear that the Commis- sioners intend that rent allowances should be permanently withdrawn. It will there- fore be necessary to consider the abolition of rent allowances again when dealing with the new salary scales which the Commissioners have proposed.

14. The Commissioners contend (paragraph 16) that the regulations under which an officer retiring from the service of the Government is allowed the privilege of com- muting a portion of his pension are not founded on a properly calculated actuarial basis and must therefore impose an undue burden on the Government's finances. For this reason they recommend (paragraph 18) that the payment of commuted gratuities should be immediately suspended. The same proposal has been put forward by the Board of Ministers as one of their measures for balancing the Budget for 1932-33 and has been referred to you. It is unnecessary, therefore, to discuss the justice of the proposal in this despatch. I content myself now with pointing out that if the sus- pension of commutation is made applicable to officers now in the service it would be a complete departure from the principle on which the Pension Minute has always been administered, namely, that no amendment may be allowed to affect adversely any officer in the service at the time the amendment is made.

15. I am unable to understand how any immediate saving can be expected from the Commissioners' recommendation that the operation of the right to retire under Article 88 of the Order in Council should be confined to a limited period (para-

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graph 18). On the contrary, the immediate result would undoubtedly be a sharp rise in the number of retirements, an increase in the Governinent's pension commitments not balanced by a corresponding reduction of the salary bill (since many of the officers who retired would have to be replaced by others) and heavy payments of commuted gratuities, unless of course such payments had been suspended as the Commissioners recommend. Many officers who are now content to remain in the service with the knowledge that they can exercise the right to retire at any time, if owing to any alteration in their circumstances or conditions of service it seems advisable for them to do so, would certainly not be prepared to take the risk of allowing the limited period of operation of the right to elapse if a limit were imposed, and it would prob- ably be some years before the increased expenditure caused by a sudden wave of retirements was counterbalanced by the fact that those officers who remained would be thenceforth precluded from retiring except on grounds of age or ill-health. But quite apart from the financial aspect, the effect on the administration of the Island and the efficiency of the services if a large number of officers were to retire simultaneously, as would certainly happen if a time limit were imposed, would be serious in the extreme. I consider this recommendation a most short-sighted one. 16. Curiously enough, the Commissioners make no recommendation in regard to the future provision of passages for existing members of the public services, con- fining themselves to the suggestion that no future recruit should be entitled to any passage allowance."

As you are aware, the passage question has been very much in the political foreground during the past year, and it has once again become an urgent problem in connexion with the preparation of the budget for next financial year. I should certainly have expected the Commissioners, with their sensitiveness to the political atmosphere, to have recommended the total abolition of passages. I feel confident that a recommendation to this effect will appear in their final report. I need not deal at any length with this question, nor with the Commissioners' recom- mendation that the issue of free holiday warrants for journeys on the railway should be curtailed. Both questions were exhaustively discussed in the correspondence commencing with my Confidential telegram No. 163 of the 30th July, 1931,* con- firmed by my Confidential despatch of the 7th August, 1931,† and both questions are under reference to you at the time of preparation of this despatch. I need only say that I remain of opinion that no alteration of the present passage and holiday warrant schemes should be permitted. I have already shown that the effect which their curtailment or abolition would have on the financial situation would be scarcely appreciable. The agitation against passages, in particular, is of purely political origin.

17.

The recommendation in paragraph 20 of the report is so manifestly in- equitable that it is scarcely necessary for me to discuss it. It may be necessary to call upon public officers to make heavy sacrifices to help the country in its financial embarrassinent, but those sacrifices should at all events be fairly distributed. The suggestion that officers who have not yet reached the maxima of their salary scales should be called upon to sacrifice their increments, while those who have attained their maxima (or happen to have been punished by stoppage or deferment of incre- ment) should make no corresponding sacrifice, strikes me as fantastic. I cannot conceive why the Commissioners should suggest this quite unprecedented expedient in place of the far simpler and more equitable remedy, which must have occurred to them, of increasing the existing levy.

18. The recommendation that the rates of subsistence allowance should be reduced is one on which an immediate decision is not required. That question, with the related question of mileage rates, is already being investigated in the Treasury. The Commissioners evidently feel that this matter is one of subsidiary importance, for they put it forward without any argument at all. I do not propose to deal with this estion here, nor shall I specifically discuss the recommendations made from para- graph 22 to the end of Chapter 11, which may be regarded as a part of the general recommendation of an entirely new series of salary scales.

19.

Before I deal with the new scales of salaries proposed by the Commissioners.

I should like to dispose of one of the most important questions that arises upon their report, namely, whether, and if so to what extent, present members of the services are to be affected by the revision of salaries. I have already mentioned the somewhat "what we shall obscure reference in paragraph 12 of the Commissioners' report to

in our final report probably recommend for the existing members of the public service,” and from information which I have received I understand that that recommendation will probably he that officers now in the service, on promotion to new posts, even in the

*No. 30 in Eastern No. 154.

† No. 32 in Eastern No. 154.