SECRET
vealed no substantial disagreement on estimates, apart from the possibility of excluding transitional costs of the run-down (about £2.7 m.) in order to
keep the figure down to S40 m. from the start.
The Hong Kong Contribution
5.
Hong Kong at present contribute about £81 m. a
year. The Governor has re-stated his firm view that they could not pay more than £17 m. in 1976. Ile accepts that thereafter the contribution, whatever its amount, should be adjusted annually for changes in pay and price levels.
6.
will have to close
The Governor's reasons are the political and economic situation in Hong Kong. lle agrees that the present contribution is unreasonably low. But Hong Kong free a budgetary gap of £200 m. in 1975 (30% of total revenue). In this situation his considered advice is that, for a reduced force, a 75% contribution
of £30 m.,
more than three times the present level, would be too much sudden increase, affecting both his social programme and confidence in the Colony's future. His proposel is that the Hong Kong
contribution should be doubled.
A Further Reduced Force
7. To bring costs down further, the Governor has proposed a study of a further reduction in forces to
about major units. This would reduce costs to about
£35 m. a year;
but would result in a reduction of
capabilities. The Governor accepts that it would be very much a second-best.
Options
8.
Whichever force level is decided on, we are in sight of agreement if a 50% contribution is adopted though the extra costs would have to be carried on an already severely reduced UK defence budget. But a 75% contribution would require a substantial increase in Hong Kong's offer (a further £13 m. a year for a £40 m. force, or £10 m. a year for a £35 m. garrison).
/Agreement
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