TNAG-0255-FCO40-291-Contributions-of-Hong-Kong-for-costs-of-maintaining-military-1971 — Page 126

Mr. Laird

Reference.......

2

66.)

Flag 65

dag

Flag C

$2

52

Flag

I offer the following comments on the attached letter from the Governor in reply to Mr. Wilford's letter of 2 October.

2. Paragraph 2: This merely confirms the assumptions in paragraph 3 of Mr. Wilford's letter and follows the line of the existing defence contribution agreement.

3. Paragraph 3: The reference to a decrease in local

spending is, I assume, the result of comparing the figures for local costs (recurrent) sent to the Governor in October, 1969, with the revised figures sent to him at the beginning' of this month. The revised figures for the local cost element of maintaining that proportion of the garrison required for internal security purposes show a decrease from £7.11 million to £6.63 million a difference of £480,000.

4. Paragraph 4: The reduction of £1 million is presumably arrived at by dividing £5.58m by four (1970 figures): this gives £1.39m. The figure of

1.45 £45m which is mentioned must, I assume, be an

approximation to the £480,000 mentioned in paragraph 3

above.

5.

Paragraphs 7-9: On the basis of these paragraphs, the theoretical escalation in costs over the five year period of the agreement would look something like this (allowing equated annual increases): -

1971/2

1972/3

1973/4

£m.

6.55

7.025

7.5

1974/5

7.975

1975/6

8.45

The increase between 1971/2 and 1972/3 is 7.25% and this lessens to 5.95% between 1974/5 and 1975/6, so I do not understand the Governor's reference to price inflation of "roughly 10% p.a. over the period."

6. A similar exercise, but taking £8m as the pivot figure would work out as follows:-

6.55

7.275

8.0

8.725

9.450

This shows an increase of 11.06% between 1971/2 and 1972/3 which lessens to 8.5% between 1974/5 and 1975/6.

7.

Paragraph 10:

(a) I wonder what the Governor would accept as being a prosperous Hong Kong?

(b) On the basis of the Colony's 1970-71 estimates, Hong Kong is spending 13.55% of its total annual expenditure (including recurrent and capital expenditure and the whole of the defence contribution) on defence and internal security (including its Prisons Department). If only recurrent expenditure is taken into account, the

/figure.......