TNAG-0280-FCO40-316-Visit-of-Parliamentary-under-Secretary-of-Foreign-and-Common-1970 — Page 40

4.

potential value to Hong Kong if no longer needed for use by the Services. Our understanding of this is that within an annual contribution of £8 million there would be a varying amount of up to £2 million annually for capital works of that description. Depending on what 18 regarded as of potential value to the Colory, it would seem that the amount could be appreciably short of £2 million in some years, but we assume that this would not affect the overall amount of the contribution and that, as in the case of the existing agreement, there could, by mutual consent, be virement between the capital and recurrent elements of the contribution. Perhaps you would confirm that this is your intention.

(b) Minor Works and Maintenance

The existing arrangement whereby the Colony is physically and financially responsible for a proportion of the minor works and maintenance it carries out on behalf of the Services has worked satisfactorily and is

a system which we should all presumably be happy to continue.

Is this your intention? And are we right to assume that as under the present memorandum of understanding, the cost would be included in your figure of £8 million?

The difficulty about fixed annual contribution for five years is that its value would inevitably decrease in real terms over the period. This is objection to the present agreement. It would be more acceptable here if we could have a provision for annual adjustments to cover pay and price increases so as to maintain the real value of the contribution, with possibly a progressive increase of the proportion of the expenditure borne by the Colony. I note that a provision to cover pay and price increases was mooted in the course of the negotiations over the existing contribution and which you regarded as reasonable although you pointed out that the Hong Kong Government would have no control over increases in costa. A method which we should be very willing to look at would be one by which the contribution increased by a predetermined amount each year, We would welcome your viewə on

this.

5. Finally, our major difficulty is over the starting amount of the contribution. I am sure you appreciate that in the context of the public expenditure discussions here, and the particular problems of the cost of Defence, Ministers will want to be satisfied that the amount offered is as much as it is reasonable to expect. In the light of these considerations and

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