TNAG-0316-FCO40-352-Reform-of-local-government-of-Hong-Kong-1971 — Page 118

D

CONFIDENTIAL

(b)

- 11 -

XCC(71)20

authority) should indeed be subjected to this form of financial control, but it is felt that it would be better, both in practice and presentationally, to give the Urban Council a specific source of income in some tax or other source of revenue which has some relevance to the Council's work, is substantial enough to meet the Council's outgoings and is growing, and which the Urban Council could seek to have increased, should this be necessary, to meet its planned expenditure. The only tax which meets these criteria is the rate; the total urban rate now exceeds $300 million and a separate Urban Council rate would be not inappropriate, bearing in mind the nature of the services offered by the Council, Admittedly the rate has always been popularly known as the "Police tax" but this is not thought to be a very substantial objection.

Annex D sets out in detail proposals for giving the Urban Council greater financial responsibility. Basically, the proposal is to give the Urban Council its own rate (which initially is unlikely to exceed 6%) to meet recurrent expenditure, and to require it to borrow in the market, providing a Government guarantee where necessary, to meet capital expenditure. It will, of course, have other sources of income, as set out in Annex D. Once the initial rate has been determined, the Urban Council will be free to raise its rate, with the Legislative Council's approval, to allow it to expand its services or to meet rising costs (if this cannot be done in some other way, for example by fee increases). The Urban Council would be required to present its annual budget to the Legislative Council for approval each year, and to present audited accounts in the same way at the end of each year. Substantial legislative amendments will be needed before this scheme can be implemented, and the earliest possible date for introducing it is 1st April 1972. It is to be expected that the present members of the Urban Council will not take kindly to the require- ment that increases in its recurrent income must come from increases in the Urban Council rate to the extent that higher fees do not meet the situation, since this arrangement will inevitably attract adverse public comment every time the Council seeks such an increase. However, this element of accountability to the public is an essential feature of the scheme, and it is this which justifies the considerable degree of financial autonomy proposed. The requirement that the Urban Council should finance its capital expenditure by borrowing (rather than by grants from general revenue) is essential if detailed Government scrutiny of all such projects is to be avoided.

CONFIDENTIAL