CONFIDENTIAL
4.
Treasury officials believe that Mr Portillo will not be prepared to agree the Governor's position. I am not optimistic that, in that case, OPD (K) would agree to overrule the Chief Secretary and impose our preferred solution. One possible way
forward, hinted at by the Treasury would be for the Secretary of State to accept a less generous sterling pension safeguard in exchange for Treasury agreement to the SPOS. This proposal has
some attraction because a sterling pension safeguard, even at
the rate of HK$16: £1, is unlikely (except in the most extreme circumstances) to offer any practical benefit to pensioners,
whereas the SPOS amendment would in time provide a valuable
supplement to their pensions and would provide some limited protection against exchange rate movements. My judgement is that a sterling pension safeguard at a lower rate than 16:1 but
combined with the SPOS amendment would be of more real value to
HMOCS members (and to existing pensioners) than a pension
safeguard at HK$16: £1 without the SPOS amendment. But we could not explore this approach unless the Governor was content: and we should first establish how far Mr Portillo will go on the
sterling safeguard before contemplating any further significant
concessions. (If the Governor was content, the Secretary of
State might deploy the line to take in square brackets under
SPOS).
5. The Secretary of State may wish to discuss the proposal in
paragraph 4 above with the Governor at their meeting at 9.30am
on 29 July.
Than
J C Morris
gdl.min.ADM
SLM
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CONFIDENTIAL
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