cst.ps/dr/22mp8.11
CONFIDENTIAL
CHIEF SECRET
TO
THE
E TREASURY
4.
We
have already identified that it should be possible to devise a compensation scheme acceptable to HK HMOCS that would split the cost difference between us. Such a scheme would cost a maximum of £39 million at current prices.
5. The sums at issue between us on a pensions safeguard are considerably larger. Το arrive at a safeguard proposal that was fair, I had to take account of the much higher salaries and pension entitlements of HK staff compared to their UK counterparts. My proposal for a 26:1 level, combined with the Treasury mechanism for applying it, was therefore devised to protect the pensions of HK staff in sterling terms at a level equivalent to the pensions received by their counterparts in the
UK.
6.
I continue to regard my proposal as a fully adequate and defensible level of underpinning of retirement income for existing and future HK HMOCs. However, in order to reach an instant settlement on this element, I am prepared to split the difference between us on the exchange rate level that would apply. This would be HK$21:1, halfway between the 16:1 you seek and the 26:1 I have proposed. This scheme would operate on the basis of the Treasury mechanism. We would still
faced with a substantial maximum
contingent liability of up to £170 million.
7. A 21:1 level of protection would give HK HMOCS a guaranteed sterling pension significantly in excess of the benefits they would be entitled to were they to be working in the UK. I therefore consider this concession obviates any case for providing further support through amending the SPOS regulations.
8.
Any package will, of course, have to be financed out of fixed public expenditure totals. I can give no assurance that additional provision will be made available.
9. My final offer as set out above is driven by the Prime Minister's request that this protracted matter be sorted out in double quick time. Indeed, but for the Prime Minister's instruction, I would not have made this offer. It does not, therefore, constitute an offer on which further negotiation is possible. I trust you will recognise that and agree to settle on this basis. The Governor should now accept the outcome and present it positively to the HMOCS.
10.
I am copying this letter to the Prime Minister.
Yours sincerely, P.Warless
PP MICHAEL PORTILLO
[ Approved by the Chief Secretay
signed in his absence. ]
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