TNAG-2424-FCO40-3526-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 11

From: To:

CONFIDENTIAL

Secretary of State

Chancellor of the Exchequer

HONG KONG: ARRANGEMENTS FOR HM OVERSEAS CIVIL /SERVICE

1.

I minuted to Michael Portillo on this subject on 1 May. Since then, it has become even clearer that we must settle on a package of arrangements for members of Her Majesty's Overseas Civil Service (HMOCS) before Chris Patten arrives in Hong Kong at the beginning of next month. This matter has dragged on for years in discussions at official level, and now needs to be brought to a head.

2.

I should therefore like to propose a meeting next week with you, Michael Portillo, Alastair Goodlad and Chris Patten in order to try to agree on the two essential elements of the package I believe we must put forward if we are to avoid a damaging impact/on morale in the remaining years before 1997:

This was the subject

S pomilet

(a) Sterling safeguard for pensions: of my minute of 1 May. We agree that we already have a contingent liability to step in if after 1 July 1997 the Government of the Hong Kong Special Administrative Region (SAR) should default on HMOCS pensions. We estimate that in the peak year of 2011 HMÓCS pensions could total HK $265m, ie this existing contingent liability could be worth nearly £19m pa at present /exchange rates. The question is whether we should also accept a contingent liability to protect HMOCS pensioners/against a fall in the value of the Hong Kong dollar against sterling, ie to pay supplements to make up the difference./ In all 42 other cases since 1954, HMOCS pensioners enjoyed a continuing sterling safeguard after British rule ended. The maximum liability could amount to some £5.5m pa in the peak year of 2011, if we had set the trigger rate at HK$16: £1 and the dollar were to drop to HK$24: £1 (at present it is about HK$14:£1).

(b) Compensation: In 1988 John Major, as Chief Secretary, accepted Geoffrey Howe's proposal for a UK-funded compensation/incentive scheme. On the Governor's advice, and with David Mellor's concurrence, we decided earlier this year to begin consultations with the HMOCS Association about this scheme without waiting for decisions on the sterling safeguard. I have now reviewed the consultations which my officials held with the Association in Hong Kong from 7-11 May, I have concluded that the present proposal is inadequate it falls far short of the reasonable expectations of the officers concerned; despite the good assurances in the Joint Declaration there are now real concerns about future developments in the administration and police force; it is not politically defensible to give officers only 10% of the compensation traditionally payable unless they agree to go on working under Chinese sovereignty after 1997; moreover in terms of incentives, our priority is now to induce officers to serve at least until 1997, rather than for any long period thereafter, and the danger now is that many will otherwise leave before

CONFIDENTIAL