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Dr. Jeremy Bray (Motherwell, South): In the interests of the Chinese civil servants and the overseas civil servants, is the Minister aware that a suggestion has been made recently in Hong Kong by Sir S. Y. Chung that a shadow Government should be appointed by China six months before the hand-over date to make shadow laws and to prepare a shadow budget? Does the Minister agree that that would cause great confusion in the civil service and for all those who seek to achieve a smooth hand-over in 1997? Can he confirm that the Government have no reasons to believe that that represents the views of the Chinese Government?
Mr. Hanley: I accept the hon. Gentleman's question. Although Sir S. Y. Chung's proposals appear to have been made in a personal capacity, they are damaging to confidence in Hong Kong. The Governor and the Hong Kong Government are committed to co-operation with the Preparatory Committee and future chief executive to ensure a smooth transition in Hong Kong. There is nothing in the joint declaration or basic law about a provisional Government. I believe that the establishment of such a body would only confuse and unsettle the community and the civil service. That is in the interest of neither Hong Kong nor China.
The Government remain committed to effective administration of Hong Kong until 1 July 1997, and we shall do nothing to undermine the authority of the Legislative Council elected in September. I continue to believe that it should be allowed to serve its full four-year term. I hope that the hon. Gentleman accepts that as a full answer. We should now stick more closely to the terms of the Bill.
Subject to Parliament's agreement, it is proposed that Hong Kong HMOCS members and pensioners should be offered the following package of benefits. First, on premature retirement, the HMOCS members would be allowed to retire before the resumption of sovereignty by China, with immediate payment of pension. To enable the Governor to phase departures, officers would be allowed to retire prematurely between 1 July 1996 and 30 June 1997.
The second part of the package is compensation. The HMOCS members would be paid compensation for loss of the Secretary of State's protection and career prospects, based on their seniority and length of service. The proposed compensation arrangements would be broadly similar to previous HMOCS compensation schemes, except that the actuarial factors used to calculate compensation are somewhat less generous. That is because the provisions in the Sino-British joint declaration offer the Hong Kong HMOCS officers a better chance of a continuing career than their predecessors could have expected.
There will be a cap on compensation of £120,000 at 1992 prices. That year was chosen because that was when we first put forward proposals on an HMOCS package for consultation with the interested associations. The cap was set with reference to caps in previous HMOCS
compensation schemes, uprated in line with United Kingdom inflation. As the HMOCS members in other former British dependent territories were not required to pay tax in Britain on their compensation, the HMOCS members would be paid their compensation gross. The cost of any United Kingdom tax liability would be met directly by the British Government.
The compensation arrangements would be set out in two schemes: compensation scheme A and compensation scheme B. The only significant difference is that compensation scheme B would apply to officials who decided to retire prematurely and compensation scheme A would be for those who continue. The compensation arrangements would cost about £47 million at current prices.
The third part of the compensation scheme is a sterling pension safeguard scheme. The HMOCS pensions will continue to be paid in Hong Kong dollars by the Hong Kong Special Administrative Region Government after 30 June 1997. In line with the policy in the 1954 and 1960 White Papers, and subsequent practice, the British Government intend to provide the Hong Kong HMOCS members with pension protection. Unlike previous cases, the Government have decided not to protect the full sterling value of the Hong Kong HMOCS pensions at the date of change in sovereignty. As the Hong Kong HMOCS members receive salaries which have a greater purchasing power than those of their predecessors and of their British counterparts, the Government propose that their pensions be protected at a level broadly equivalent to the pensions received by officers in similar grades in the British public service. This principle of broad comparability underlies the proposed sterling pension safeguard scheme.
Sir Anthony Durant (Reading, West):
I am speaking for the Overseas Service Pensioners Association, which is concerned about the formula with which my hon. Friend is now dealing. It feels that the divider of HK $21 is rather unjustified. It would rather stick to the value of a HK $14.6 exchange rate as at 1 January 1992, which it feels is a more satisfactory approach. I wonder whether my hon. Friend will comment on that.
Mr. James Couchman (Gillingham)
rose--
Mr. Hanley:
It might be for the convenience of the House if I accept another intervention.
Mr. Couchman:
I was about to make much the same point as my hon. Friend the Member for Reading, West (Sir A. Durant). I believe that OSPA suggests that the Hong Kong dollar has never been at an exchange rate worse than HK $16 to the pound. Therefore, it sees the divider of HK $21 as totally illogical and unfair. If the safeguard scheme comes into operation, it will reduce pensioners' income to about 70 per cent. of what it should be under the present terms.
Mr. Tim Renton (Mis-Sussex)
rose--
Mr. Hanley:
Would my right hon. Friend care to intervene before I deal with those interventions?
Mr. Renton:
I want to intervene on the same point. I take a contrary view. The Hong Kong Government and the British Government have worked out a satisfactory compromise. The Hong Kong dollar has been extremely strong, in fact a good deal stronger than sterling, for many
Mr. Hanley:
I am grateful to my right hon. and hon. Friends for their questions.
When we started considering the proposed scheme in 1991, the Hong Kong dollar exchange rate was HK $13.76 to the pound. To bring average Hong Kong and United Kingdom public servants' pensions into line, we calculated that the exchange rate would have to fall from that level to about HK $21 to the pound. That is why the divider of 21:1 appears in the scheme.
We can calculate a pensioner's protected pension by taking the Hong Kong dollar salary in 1991 for the grade at which he retired and dividing that figure by 21 to give the protected pension in sterling as at 1991. That amount is then uprated in line with UK inflation since 1991 to give the current value of his protected pension. In the scheme, his protected pension is described as his notional pension. If, at any point, the sterling value of his actual pension fell below the value of his notional pension, the Government would make up the shortfall.
So the Hong Kong pensioners will continue to be paid their pension. We are talking about a possibility that the Hong Kong dollar might fall. I should like to think that the Hong Kong dollar will not fall but will continue to be strong. It is the objective not only of Her Majesty's Government but of all people of good will that Hong Kong should continue to flourish and have a strong currency.
If the Hong Kong dollar fell, we would protect those pensioners as soon as it fell below HK $21 to the pound. That would mean that the pensions of those people who at present receive pensions higher than those of equivalent civil servants in the United Kingdom would be on broad parity. That seems to the Government to be a fair balance between the needs of protection for Hong Kong pensioners and for the British taxpayer.
Dr. John Marek (Wrexham):
The Hong Kong civil servants were recruited by the British Government. They have an expectation of a certain pension at a certain rate. The Government seem to be saying arbitrarily that in certain circumstances they will reduce the civil servants' pensions by up to 40 per cent. Those of us who may be selected to serve on the Committee that will consider the Bill will wish to go into the matter in some detail. Is there any chance of the Minister publishing a draft Order in Council so that we have some meat on which to chew and we can consider the matter carefully? The Bill is an enabling measure. It is difficult to take exception to any of it. We need to be able to see, certainly in Committee precisely what the Minister is getting at. If he could help the House in that way, it would go a long way towards what I suspect will be a more or less bipartisan approach to the Bill.
Mr. Hanley:
I am grateful to the hon. Gentleman for his careful and thoughtful intervention. I imagine that the Committee proceedings will be held within the next two
I assure the House that the British Government would not incur any significant liability under the sterling pension safeguard scheme unless the Hong Kong dollar fell substantially in value. That is just not likely to happen. Certainly in the foreseeable future, Hong Kong's economic stability and the publicly stated commitment by both the Hong Kong authorities and the Chinese Government to maintaining the linked exchange rate between the Hong Kong dollar and the US dollar will bring greater stability to the Hong Kong dollar. The maximum contingent liability under the scheme, based on the wholly unrealistic proposition that the Hong Kong dollar will be worthless on 1 July 1997, would be £130 million spread over 50 years. That liability would diminish rapidly with the passage of time and could be expected to halve within only eight years. We are talking about a contingency.
The fourth part of the package is resettlement help. The HMOCS officers who retire prematurely would be given financial help in finding reemployment or retraining. This help, some of which would be provided by a consultant or in other ways, would be limited to £2,500 per officer, and subject to an overall cost ceiling of £750,000. The Chinese Government have been informed of the proposal to provide benefits to members of the HMOCS in Hong Kong. They have accepted that this is a matter for the British Government.
An additional element of the package does not depend on the Hong Kong (Overseas Public Servants) Bill for its implementation. It is a proposed amendment to the Regulations on Supplementary Pension for Overseas Service, known as the SPOS. The regulations ensure that increases in all HMOCS pensions, not just those of Hong Kong, keep pace with inflation in Britain. The regulations as applied to Hong Kong are complex and technical, but in essence what we propose is an amendment which would allow the payments under the SPOS to take into account small reductions in the value of the Hong Kong dollar relative to sterling. That would provide some benefit to Hong Kong pensioners, particularly over the long term.
The proposed package has been discussed extensively with the HMOCS Association and OSPA. The HMOCS Association has given its full support to the early passage of the Bill. Despite the misgivings of some former Hong Kong HMOCS members about some elements of the package, the Government believe that it strikes a fair balance between the interests of the HMOCS pensioners and the British taxpayers who will have to fund it.
In conclusion, I urge right hon. and hon. Members, in considering the Hong Kong (Overseas Public Servants) Bill, to bear in mind the contribution that the HMOCS officers have made to Hong Kong, the uncertainty that they face over their future careers, and the honourable record that the British Government have established in providing a reasonable package of benefits to the HMOCS upon the ending of British sovereignty over our dependent territories. It is only right that the HMOCS officers in Hong Kong should receive benefits similar to those provided to their predecessors. I hope that the arguments that I have made will be supported by the House.
I thank the hon. Member for Wrexham (Dr. Marek) for his question. I have just heard that the information that he requested--schemes for Orders in Council--are at this moment being placed in the Libraries of both Houses.
Mr. Derek Fatchett (Leeds, Central): In the spirit of these post-Nolan times, may I thank the Hong Kong Government for the hospitality that they have shown to me in recent days, during which I was a guest of the Government. I thank them for the timetable that they organised for me. It was my first visit to Hong Kong and it was a most impressive experience. It is difficult for anyone to come away from Hong Kong without having been struck by the nature of its society. It is an interesting society and one which is, for fairly obvious reasons, increasingly politicised. Everyone has a view on the events that are taking place and are likely to take place on the island. It was fascinating to hear the full spectrum of views that came in my direction. I am sure that the Minister has been through a similar experience. One or two people mentioned kindly to me the meetings they had recently had with him.
Two things struck me visually about Hong Kong. The first was the intimate relationship between the economy of Hong Kong and southern China. One can understand that only by seeing the extent to which Hong Kong's manufacture, if I may use that expression, now takes place in southern China. The second was the success of the Hong Kong people and Government in undertaking such a massive infrastructure project as the development of the new airport. The airport, the road scheme and the railway projects are all running virtually on time and in budget. That is a tremendous achievement and one which the Government and those directly involved in the projects can be proud of.
I thoroughly enjoyed my experience of Hong Kong. It taught me a lot about the place and I look forward to further contacts with the people of Hong Kong.
As for the specifics, we welcome the Bill. In particular we welcome the Minister's final comments about providing additional information for the Committee. My hon. Friend the Member for Wrexham (Dr. Marek) has never made such a potent intervention. Within a matter of moments his wish was delivered. One hopes that he will intervene similarly in other debates in future. It may also be helpful to deal with one or two of the points raised by Conservative Members. Of course they may also queue up to serve on the Committee, armed with all the additional information, and be able to make speeches at that stage.
It is right--the Minister made the point--to treat Hong in line with all the other 42 similar experiences. It may be worth while putting on record the fact that last week I had a meeting with Ian Strachan and his colleagues of the Association of Overseas Civil Servants and they were broadly sympathetic to the Bill. They want it to have a quick passage through both Houses. They have some reservations about the sterling guarantee, as the Minister acknowledged in his speech. They said, however--it is very important for all to recognise--that the Bill represents the best available deal on the table. They accept it and want to make progress with it. I say to the civil servants that Labour Members will certainly do nothing to hinder that progress. Indeed, we will do all we can to ensure its speedy passage.
One thing struck me very much last week: the extent to which the civil service in Hong Kong is seen as an important element in civil society. The characteristics of the Hong Kong civil service are ones of which those who have worked in it, either as overseas civil servants or as Hong Kong civil servants, can be justly proud. It is seen as clean, corruption-free and supporting the rule of law.
When we in this House, for obvious reasons on occasions, criticise civil servants, we should look at the Hong Kong experience and the relationship between a clean, corrupt-free civil service and the rule of law and economic development. I hope that those operating in business in Hong Kong take on board the lesson that much of their success and the framework in which their businesses have operated have depended on the type of civil service operating on the island. All of us would wish to express our thanks to those who have worked in the service over the years.
The Minister referred to the fact that about 530 civil servants will benefit from the legislation. Of course the vast majority of civil servants in Hong Kong will not benefit and they will continue to serve the Government both in the pre-1997 arrangements and the post-1997 arrangements. They have also made a very important and successful contribution over the year.
There were anxieties, as the Minister will no doubt acknowledge, over the localisation programme. That is partly dealt with by the Bill. It has to be handled sensitively. There has been some success and it is obviously important that we continue to move forward.
One of the issues that clearly came to light, to which the Minister did not refer but which is important, was the need to maintain the character of the civil service in Hong Kong post-1997. That is important for the economic success of the island and for Chinese sovereignty. The decision on the appointment of the chief executive, which has to be taken by the Chinese Government during 1996, will have a significant impact on civil service morale. I am sure that all hon. Members participating in this debate acknowledge the importance of appointing someone who is seen as upholding the traditions of the civil service and the rule of law and who will give the service a sense of confidence. We will all be watching that appointment--it will be crucial to the post-1997 development of Hong Kong.
The Bill deals with the fears of overseas civil servants. It is right that we should deal with those fears and that we should come up with this legislation and deal with it in the way that we are. The Bill also reminds us--if I may broaden out to some of the Minister's finer points--that we are fewer than 600 days away from the change of sovereignty. The Bill is important because it is but one detailed issue on the path towards the transfer of sovereignty and the way in which we handle it will be significant in future.
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