ew/let1.15.5
3
CONFIDENTIAL
to raise salaries for these individuals significantly (over and above the prevailing rate of inflation) to keep them in the service. This could have substantial resource implications and it is likely that the Chief Secretary will not be willing to make such an open ended commitment so far ahead. I think we will need to consider how to limit this potential commitment. One possibility would be to build in some kind of caveat which provides for HMG to review the benefits in the light of prevailing salary levels in 1997 and thereafter. I note that this possibility was raised by Dave Fish in his minute to you of 6 April. Have you been able to give it any further consideration?
You suggest that incentive payments should be paid annually for nine years following 1997 and I note that Sir G Howe in his minute to the Chancellor of November 1988 referred to the incentive scheme running other a ten year period. However there does not seem to be any particular reason why the scheme needs to run for so long. It could be argued that smooth transition could be secured with a scheme lasting, say, three years. At that stage the salary supplement will in any case have only a limited effect in terms of persuading people to stay in Hong Kong. I would add, partly in relation to the above, that the escalation in cost since 1988 is of considerable concern to us. An increase from £10m-20m to £33 million since 1988 is very significant particularly if it indicates the kind of escalation we can expect between now and 1997! Could you explain the changes in the underlying assumptions which have resulted in the revised estimate?
-
Finally, I am not entirely clear as to why you need to announce this scheme now. If, as you say, the staff are likely to be disappointed, there would seem to be some advantage in holding off. I would suggest that 50% increase in salary looks much more attractive the closer you are to it!
You told me that your new Under Secretary is planning to hold a meeting to discuss this and related Hong Kong issues in the near future. Perhaps it would not be appropriate to go over the detail of this scheme in that meeting. Could I suggest that you, Dave Fish and I might meet to go over the points I raise above?
I trust you will understand our concern about this issue: it is very unusual for the Treasury to make a commitment to public expenditure so far ahead of need and on so uncertain a basis. At the very least, I think we need to reduce the uncertainty as much as possible for the sake of our successors.
I am sending a copy of this to Dave Fish.
Yous
Rs.
S REW
No comments yet.
Private notes are available after approval.