TNAG-0544-FCO40-639-Strength-of-garrison-in-Hong-Kong-1975 — Page 54

CONFIDENTΙΑΙ

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4

8.

9.

10.

On this basis it was accepted by the Hong Kong side that its concern over differential inflation had diminished to the extent that the sterling component of cost which had previously been assumed as amounting to about 48% of total costs, had been reduced to 30%. Nevertheless, even 30% was a matter for concern and every effort should be made to diminish it further by an examination of the ratio of LEPs to expatriate personnel, manning ratios, conditions of service and the way in which services were acquired. The Hong Kong side felt that, even if these economies could be made, it might still be necessary to devise some method of limiting the effect on Hong Kong of differential inflation. In this respect it was noted that the problem of differential inflation could be phased in terms of the type or location of expenditure. The U.K. side suggested that some means might be found of relating the cost of equipment etc. from the U.K. to Hong Kong, as opposed to U.K., rates of inflation. It was also noted that, in the context of a continuing search for economies, either side could have recourse to the review clause (clause 10) of the draft MOU.

Statement of Working Procedures (Finance)

It was noted that the statement of working procedures should cover the actual rate of exchange to be used for sterling components of cost and that provision should also be made for regular returns on such items as man- power strengths.

The Balance Sheet

It was accepted that the following set-offs should be regarded for the present time as being self-cancelling:

U.K. pensions, amortisation of training costs,

depreciation of existing equipment, interest on capital, higher formation costs.

Hong Kong: income tax, national insurance contribution,

interest charges on capital works, airport landing fees, rates.

It was agreed that the U.K. side should examine the possible reductions in cost set out in paragraph 6 and produce revised totals, both in the form of the tables already distri- buted and in the agreed inflator groupings.

C.S.O., H.K.

CONFIDENTIAL