TNAG-2687-FCO40-3889-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1993 — Page 167

CONFIDENTIAL

4.

The gap between the Treasury and Foreign Office proposals

is:

5.

for the compensation scheme, some £21⁄2 million a year for

6 years starting in 1997, amounting in total to

£15 million;

for the safeguarding scheme, contingent liabilities

payable only in the event of the collapse of the Hong Kong dollar or default by the Chinese government amounting in total to some £150 million payable over 50 or more years

with a maximum liability of £20-25 million in the projected

peak year of 2007/08.

The central issue is whether the additional costs and

contingent liabilities of the Foreign Office proposals are

affordable in public expenditure terms and would produce

commensurate benefits in ensuring a smooth transition. That must

be a matter of judgement; the Governor argues that the Foreign Office proposal is the minimum honourable settlement.

6.

If Ministers wished to reach a compromise, the design of the schemes is such that virtually any intermediate sums could be

delivered (by varying the multipliers for the compensation scheme

or the exchange rate for the safeguard scheme). An alternative

approach for the safeguarding scheme might be to calculate

payments differentially for different groups rather than averaging across all staff. This would allow, for example, more

generous terms to be offered to the lower paid groups

(principally the police). Once agreement is reached on the totals, officials could produce options very quickly.

PF OWEN

Cabinet Office

CONFIDENTIAL