TNAG-2100-FCO40-2989-HM-Overseas-Civil-Service-(HMOCS)-policy-matters-1990 — Page 167

CODE 18-77

Mr Paul

CONFIDENTIAL

40

Reference.....

FROM: D S FISH

(GTN 7 7243 3444)

DATE: 17 July 1990

cc Mr Kerby

Mr Rew, HM Treasury Mr Stanton, APD

Hong Kong Dept/FCO

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I attach some comments on your draft submission to Ministers about a general compensation/incentive scheme for Hong Kong. I am sorry I was unable to meet your timetable, but, as you know, we did not receive the paper until the morning of 11 July, and the Annex until later that day.

2. Some of our comments are simply textual, but most are aimed at adding conviction to the submission. We have also suggested the inclusion of some figures to illustrate how well Hong Kong HMOCS officers are doing. This information could have a significant tempering effect on the intensity of Parliamentary pressure for any scheme to be improved, and Ministers will wish to be aware of it. As you requested, I have provided an amended text, where possible.

We

3. The draft submission does not put forward a clear recommendation. In this respect I was particularly surprised at the differences of view expressed in paragraph 15, and to learn from you on 11 July, that the Governor had expressed a clear preference for the "10% of a traditional scheme" option. thought that we were agreed on the value of an incentive scheme based on salary rather than "loss of career" factors. As you know, we saw advantages in such a system because it distanced itself from the implication that careers were at significant risk. However, I am sure we all agree that the most essential attribute of the chosen system is that it should provide а reasonable incentive to officers to remain in Hong Kong service. If the Governor believes that this can be met satisfactorily by the original "10%" proposal, we would certainly not wish to

press for more expensive alternatives. It goes without saying that the Treasury would prefer the cheaper option. In the circumstances, perhaps it would be better to exclude such alternatives from the submission entirely, and concentrate on updating the estimates provided in the original paper.

4. There are a number of potentially costly aspects of this problem which your submission does not cover. For example, the defence against claims for a traditional scheme must centre on the guarantee of a continuing career contained in the Joint Declaration. But this will have little credibility if the external value of future salaries are perceived as being at risk of serious erosion because of possible weakness of the Hong Kong dollar. There may therefore be pressure to introduce a sterling safeguard for salaries, as well as for incentive payments and pensions. (The total cost of salaries at present values for the 10 years from 1997 covered by the proposed incentive scheme, assuming "probable" staffing levels, is estimated as £111 million.) The effectiveness of any compensation/incentive package without some offer of currency protection must be in doubt. Ministers should be made fully aware of the importance attached to sterling safeguards, by past and present HMOCS staff.

1.

CONFIDENTIAL