TNAG-2431-FCO40-3533-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 6

CONFIDENTIAL

private sector option has been fully explored.

(iii) On compensation, Mr Portillo may maintain that the original proposal (Option A) is adequate when combined with a sterling safeguard. However, he knows that this has already been rejected by the HMOCS Association, and may be prepared to accept that HMG's offer on compensation should be revised to

make it more attractive to officers. He is likely to prefer Option D as its estimated cost of £40 million is £14 million

less than Option C (our preferred option).

Exchange (iv) to accept that changes should be made to the

mulls regulations for Supplementary Pension for Overseas Service boy (SPOS), but that they should be implemented as part of an agreed package of benefits. If he does concede the principle of a sterling safeguard, he may wish to re-examine the SPOS

amendment, in case combined with a sterling safeguard it

results in a double benefit.

ways

3. Against this background, I recommend that our strategy

should be to reach an agreed package if possible, and if not

to narrow down the options as far as possible. The elements of a package which we believe would meet our objectives and

would also meet the Governor's criterion of an "honourable"

settlement are set out below. If Mr Portillo offers to settle

but on less favourable terms, we recommend that the Secretary

of State reserve his position in order to discuss the offer

with the Governor next week. If necessary we could then get a quick paper to OPD (K) to reach final decisions on a package. Specifically, we should press Mr Portillo to agree that:

(i) HMG should in principle provide a sterling safeguard

along the lines of Option A (Fixed Trigger). We should not

agree to a level of worse than 16:1, without reference to the

Governor.

sub.overs.civils.ADM CONFIDENTIAL

JEB