TNAG-0577-FCO40-710-Visits-of-UK-officials-to-Hong-Kong-1976 — Page 3

SECRET & INDIV

no one here has sought to draw attention to the requirements of this despatch and the failure to do so is one example of the willingness to relax the requirement of accountability referred to in paragraph 26 of the Planning Faper.

3.

However, it is not unreasonable to assume that the Financial

Secretary's public statement does, in fact, represent his policy which is self-evidently at variance with the Governor's own views

on what is desirable on this, not to speak of the strategy for internal development of Hong Kong put forward in the Planning Paper. Enough is known of the Financial Secretary's overall thinking to make this probable. A total limit of 20% for the government "take" from the GNF has so far been one of Mr Haddon-Cave's cardinal principles; and it is evident fact that the Governor assured Lord Goronwy-Roberts last December that maximum tax liability would rise by a substantial amount in the present budget while no such rise has taken place. The Financial Secretary's

adherence to 15% seems to have prevailed. These are but two of

the Financial Secretary's guidelines. Others are:-

(a)

that the recurrent expenditure should absorb no

more than 80% of the recurrent revenue;

(b)

that at least 60% of capital expenditure should

be financed by the surplus on recurrent account; (c) that at least 88% of total expenditure should be

met from recurrent revenue.

Such guidelines, if rigidly adhered to, would substantially impede the realisation of the Governor's own plans which Ministers here are likely to wish to see improved upon over the next few years.

This brings into sharp focus the question of whether Mr Haddon-Cave can be persuaded to think again; or whether the

only solution might be to transfer him elsewhere and look for a Financial Secretary with sufficient standing and fiscal experience

but of less rigid outlook. This question was considered in a private correspondence between Sir Duncan Watson and the Governor some time ago. The correspondence fizzled cut but it was clear that both sides recognised both courses of action presented form-

idable difficulties.

CECRET & INDIV

15.