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8. As regards personal allowances, I may observe where such an allowance has been given in consideration of exceptional personal qualifications, or length of service, it may, if you see no objection, be continued at its present rate to the existing holder of the office, while the permanent salary of the office itself receives an increase of 35 or 20 per cent. on the rate prevailing in 1875; but where the allowance has been given since 1875 on the ground of insufficiency of salary attached to the post, such personal allowance must, of course, be taken into ac- count as part of the authorized increase on the 1875 rate of salary, and be merged in the future salary of the post. In all cases where it is considered proper; on this principle to continue the separate personal allowance or part of it, I desire to receive from you a report referring me to the correspondence in which the allow- ance was originally approved.

9. The papers accompanying Sir W. DES VOUX's Despatch of 23rd December last, do not show what officers have free quarters or are in receipt of house allow- ance, fees, or other emoluments. I would observe, however, that the increase now sanctioned of 35 or 20 % on the 1875 standard, is to be understood to be an in- crease of gross emoluments as compared with the gross emoluments received in that year. I request that in sending home the list of revised emoluments, as drawn up in accordance with my present instructions, it may be clearly shown in every case, what were the gross emoluments in 1875, and what it is proposed that they should be for the future. This you will perceive will involve furnishing an estimate of the annual value of free quarters in cases where they are allowed.

10. You are aware that it is an object of policy with this Department that fees should cease to be retained by officials and should be paid into the public Treasury, the salaries which they receive being calculated to cover the performance of the duties for which such fees may have hitherto been drawn. The general revision of the salaries of public officers seems to afford a favourable opportunity for promoting this reform.

11. As bearing on the general question of emoluments, I may mention that I have also had under my consideration your Despatch No. 104 of the 15th of April last, regarding the proposed establishment of a Widows' and Orphans' Pension Fund. The number of cases of compassionate grants allowed to the families of deceased officers in Hongkong, makes it very desirable in my opinion that such a fund should be established and that it should be compulsory on all officers in future appointed to the permanent service of the Colony, to contribute to it. In the case of those officers not appointed from England who are about to receive 20 per cent., I think the Government would be within its rights in stipulating that the present increase to their salaries should be regarded as conditional on their joining the Fund when it is started. But the higher officers at present in the service, (appointed from England), many of whom have doubtless already insured their lives, may be left at liberty to join or not as they please.

12 Turning next to the exceptions which must be made to this general pro- portionate increase of salaries:--

(1.) I think that Cadets will be sufficiently paid if they are given $1,500 a year, (instead of $1,200 their present pay), and passed Cadets $1,800 as at present. These rates have just been fixed at the Straits Settlements, and it is desirable that the two Colonies should be on the same footing in regard to these initial appointments.

(2.) As regards the Police Department, I agree with Sir W. DES VEUX that considering the special privileges attached to that Department the European Members of the Force need not be granted so large an increase as the regular Civil Servants appointed from this Country, and I am willing to approve the