TNAG-0308-FCO40-344-Contributions-of-Hong-Kong-for-costs-of-maintaining-military-1971 — Page 118

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Arguments Related to the £81m (paragraph 3 of the draft)

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We agreed that the arguments in the earlier part of paragraph 3 of the first draft were the ones to go into the formal reply.

You were going to check whether we could express the contribution as a percentage of 1971/2 estimated revenue rather than 1970/1, and we thought that we might leave it to the Governor to look up the back- ground to the earlier 51% figure which he used in his December 1966 broadcast and to deploy this as he wishes.

5 The thoughts in the later part of paragraph 3 would then be given to the Governor as an additional argument to employ as he considers best tactically. We want to get home to the Unofficials that all the points about new Hong Kong expenditure, UK "benefits" from Hong Kong etc which they bring up have already been discounted by HMG in asking for a sum which, in relation to the total cost of the garrison (one third) and, broadly, to the foreign exchange cost of the garrison (about one half) is much the same as appertained in 1967, yet the new agreement is to run for an extra year and contains much more in the way of capital works than does the current one (up to £15m as against £2.4m). But for the kinds of consideration which Hong Kong adduces HMG would have felt entirely justified in asking Hong Kong now to pay a higher share of the cost of the garrison than she has been bearing under the existing agreement: HMG might well have asked for £12m or £15m a year for instance, or even more. The Unofficials draw attention to points that were made in the 1966

broadcast; they should also recall that in that broadcast it was explained that HMG had first asked for at least two-thirds of £16m say £11m. Today that £11m would be equivalent to as much as £18m. Yet we have not even gone as high as the £11m which was first envisaged as far back as four years ago.

6 In guidance to the Governor you will also wish to remind him that in his discussion with Mr Healey on 25 June 1969 he suggested that one of the arguments for an increased contribution which might sway the Executive Council was "the growth in the GNP of the Colony". Can he not now use this? "GNP" in Hong Kong is believed to have been increasing in recent years at very high rates; (I have heard mention of over 10% a year in real terms but I am unable to quote chapter and verse for this). If "GNP" is US$700 a head, it seems that the costs of defence plus the police plus a £84m defence contribution amount to only 2% of GNP whilst the UK spends 51% of GNP on defence alone and Singapore, for example, 4.9% (1969 figure).

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7 We also considered that another argument with which the Governor could be armed is the recent increase in local spending power with consequent benefit to the local economy of the British Forces as a result of the military salary award, most of which was paid in April 1970 with the final stage (for single men) in April 1971. I am not sure whether MOD have any figures to demonstrate how

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