TNAG-2688-FCO40-3890-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1993 — Page 23

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1

I submit a draft telegram and Private Secretary letter.

Background

A 3. Following receipt of the Cabinet Office paper on HMOCs, the

Secretary of State raised the subject with the Prime Minister at

a bilateral on 18 May. It was agreed that the Foreign Secretary would speak privately to the Chief Secretary to see if he could negotiate a settlement that involved splitting the difference between the FCO and Treasury proposals; and in doing so could

say that he had the Prime Minister's backing in trying to secure

an outcome on this basis. In the event, the Foreign Secretary

did not raise the matter with the Chief Secretary as the

Governor indicated that he would publicly oppose any offer to

HMOCS falling significantly short of the FCO proposal.

B

3.

In an attempt to take matters forward we recently held

(with Mr Goodlad's agreement) an informal meeting with

Treasury officials to explore whether we could settle the differences between the two Departments in a manner

acceptable to the Governor. These discussions revealed that

Treasury officials might be prepared to recommend to the Chief

Secretary a compensation scheme costing £40 million (ie

splitting the difference), and a sterling safeguard scheme

with a rate of 16:1 using the Treasury's proposed mechanism.

We consulted the Governor on whether he wished us to explore

further a compromise on this basis and suggested a number of ways in which the cost of the compensation scheme might be

reduced. We did however warn him that some of the key

Treasury officials would be going on leave and that it could

take up to two months either for an agreement to be reached,

or for us to conclude that an acceptable agreement was not

possible. We invited the Governor's view on whether we should

pursue this option and/or seek a decision at OPD (K) on 1 July.

hk.sub.ADM

SLM

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