Your reference
Our reference
J A B Stewart Esq OBE
Foreign and Commonwealth Office King Charles Street
LONDON SW1A 2AH
Dear Stewar
ADVISORY VISIT TO HONG KONG
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DEPARTMENT OF HEALTH AND SOCIAL SECURITY ALEXANDER FLEMING HOUSE
ELEPHANT AND CASTLE LONDON SE1 6BY TELEPHONE 01-407 5522 EXT 7417
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17 March 1977
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Thank you for the opportunity that there was yesterday of discussing my forth- coming visit to Hong Kong. I found it all very useful.
As I mentioned yesterday, I was of course acting as a devil's advocate in my initial responses to the points you were putting to me. But you may take it that in my work in Hong Kong I shall be looking fairly at the options before me with the aim of securing a better deal in social security which provides the most equitable solution for all concerned and which is the most acceptable approach in Hong Kong.
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I appreciate that it is your clear preference that the structure of social security in Hong Kong should move beyond the present emphasis on means testing. To some extent of course this was achieved by the introduction in 1973 of the disability and infirmity allowance scheme: but I accept of course that there is considerable room for improvement on that. If one is going to move beyond means testing, then the broad choice, as we discussed yesterday, is between a non-contributory and a contributory solution. A contributory solution may be on the lines of a social insurance approach as we have it in many Western countries or a provident fund I shall certainly approach which is still found in many developing countries. deal with these possibilities in any report that I prepare. But as you will have gathered from my immediate reactions yesterday there are difficulties about these particular solutions in the Hong Kong context. Setting up a social insurance scheme is a major administrative task. That, in itself, would be no obstacle to Hong Kong though it would mean a significant increase in the size of the Social Welfare Department. A bigger problem is settling on any satisfactory system of contributions. If the contributory system is to be fair then it should be earnings-related; and this is something to which the TUC for example attach much weight. On the other hand, to establish an earnings-related system does imply a
In this country, apart sophisticated system of checking on everyone's income.
from the self-employed, this system operates through the tax system and the work is done by employers. The tax structure in Hong Kong would not enable this to be done. If, alternatively, you go for a flat-rate contributory system as we used to have in this country, there is no doubt that you would have a simpler system to operate. But you would, at the same time, have a system which was regressive with the lowest paid paying proportionately a much greater share of their income towards the scheme. This, in itself, would make it a difficult scheme to sell; and the difficulty of selling it would be compounded by the fact that the younger members of the population could not confidently look forward to getting any significant return for their money because the bulk of the contributions would go towards paying for pensions which would not be payable until after 1998. The provident fund solution is not an attractive one either because it has not proved to be satisfactory for developed countries and most of the former British Colonies have had considerable trouble in adapting their provident funds to a modern social insurance system. Moreover, a provident fund system does not permit
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