TNAG-2425-FCO40-3527-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 136

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commitment, it would presumably have knock-on implications for the phasing and sum of costs which would arise from any sterling safeguard arrangements which we might examine. An early retirement scheme could also, to my mind, strengthen the case for capital transfer of funds from the Hong Kong Government to HMG to deal with HMOCS pensions issues. These are detailed public expenditure issues which I think are most appropriately dealt with by the two of us. If you thought it would be helpful for you and me to meet to discuss your proposals I should be happy to do so once we have the benefit of a fuller analysis.

4. I do not think it would be appropriate for Chris Patten to join us at that stage, because there are some fundamental questions of principle which we should discuss

discuss privately first. These include

(i)

(ii)

(iii)

the case for a capital transfer from HKG to HMG (which should surely be tested with the Chinese as we proposed);

the arguments for and against HMG making some kind of provision for a sterling safeguard scheme;

the reasons for conceding further ground on the compensation/incentive scheme, when what had

previously been agreed was thought to be reasonable.

5. I note your desire, in particular, for some measure of protection for the sterling value of HK HMOCS pensions. I accept that, if all other routes appeared impracticable, our officials should examine the various options which might achieve the objective, as you suggest, of fixing the liability under any scheme we might consider at the minimum level necessary. But this is, perhaps, to anticipate issues which would be covered by our

discussion.

6. I look forward to hearing from you.

Yours

ever

Michael.

MICHAEL PORTILLO

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