TNAG-0543-FCO40-638-Strength-of-garrison-in-Hong-Kong-1975 — Page 213

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SECRET UK EYES 'A'

ANNEX

TREASURY AMENDMENTS SUGGESTED TO DRAFT OPENING STATEMENT CIRCULATED WITH MR WARD'S MINUTE OF 8 OCTOBER

Comment

The draft statement does not lay sufficient stress on the seriousness of our economic position, which has deteriorated significantly even since the Defence Review and which has compelled us to seek a substantially increased Hong Kong contribution.

Amendments suggested

Delete paragraphs 2 and 3 and substitute the following:

"Before explaining in detail our position on the future cost

sharing arrangements I believe I must first make it clear to you why we have decided that we must reduce the garrison in Hong Kong and must ask you to take on the greater part of its costs, and why a satisfactory agreement with you on these matters is now of the greatest importance to us. The simple fact is that the British economy and the British Government is facing a crisis more serious than at any times since the war. Last year our balance

of payments on current account was showing

a deficit at an annual

rate of £3,750m or nearly 5% of GNP, inflation was running at a high level and unemployment was beginning to rise. We are attack- ing inflation through a severe limit on wage increases

one which

will mean a fall in real living standards for many workers and families during the next twelve months. Our balance of payments has improved, it is true, but our deficit so far this year is running at an annual rate of £1,500m this year, (and that is before the most recent increase in oil prices). Even though there has been this improvement, the solution to our balance of payments and resource problems is far from complete. By itself the elimination of our remaining current account deficit will require a substantial shift of resources from private and public consumption and will be made more difficult while the world economy remains in recession. Moreover, in order to allow time for our economy and particularly the balance of payments to adjust to the new situation we had to borrow abroad on an unprecedented scale during 1974, and are still

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