CONFIDENTIAL
HONG KONG HMOCS ARRANGEMENTS
COMPENSATION:
REVISED PROPOSAL
1. Our original proposal was drawn up in 1987/88. The only subsequent change was to increase the initial payment (received as of right, whether or not the officer chooses to stay on after 30 June 1997) from 10% to 20% of the notional total.
2. Although Hong Kong's economic prospects remain encouraging, the political position has deteriorated since 1987/88, partly because of Tiananmen. We can offer HMOCS officers no assurance that the administration and police force will be shielded from Peking's influence after 1997.
3.
It is therefore not possible to argue convincingly that, because of the protection offered by the Joint Declaration, HMOCS officers who choose not to serve beyond 1997 should receive only a small fraction of the compensation paid in other Dependent Territories when they lost the protection of the Secretary of State.
4.
The consultations in Hong Kong from 7-11 May showed that HMOCS officers had expected a more traditional scheme and bitterly resented our proposal. Previous advice from the Governor that it would win goodwill was not borne out. Officers claimed that unless the proposal was radically improved, many would leave well before 1997.
5. Since we have already made one inadequate proposal, there is advantage in our next offer being one to which we can stick. This means providing significant compensation for all officers serving in 1997, not just those who opt to stay on thereafter. It also means moving to traditional actuarial factors, rather than seeking a compromise between these and our previous proposal (about 50%).
6. Use of a cap will keep costs down. The HMOCS Association will no doubt argue for a higher cap than the £120,000 we propose (£12,000 plus RPI increases since 1963), eg £170,000 (£12,000 plus approximate UK public sector wage inflation since 1963), but this would add significantly (more than 20%) to costs, and £120,000 should be defensible in UK terms. Some senior officers may benefit less than under our original uncapped proposal (if they had stayed on until 2005), but others, eg middle-ranking police officers will do much better: latter form a group we wish to target.
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7. Interest was traditionally payable on instalments, whether or not the officer stayed on after independence. However our proposal already includes uprating of payments in line with the UK RPI, so it seems reasonable to limit interest payments to those who choose to stay on, ie
CONFIDENTIAL
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