HL Deb 29 January 1996 vol 568 cc1268-81

5.22 p.m.

Lord Chesham

My Lords, I beg to move that this Bill be now read a second time. The Bill is an enabling measure which would allow the British Government to provide a package of benefits to certain overseas public servants in Hong Kong. My purpose today is to explain the background to this proposal and to set out the package of benefits which we propose to implement by Order in Council after enactment of the legislation.

In 1954, the government of the day published a White Paper on the future of the Colonial Civil Service. That White Paper anticipated the process of decolonisation and considered how civil servants recruited from this country to work on pensionable terms in the colonies, and other dependent territories, should be treated when a colony moved to independence. The White Paper recognised that the British Government had a special obligation towards members of the colonial service. To give officers confidence about their future, the White Paper set out conditions which they could expect to be observed upon independence. The conditions included maintenance of their terms and conditions of service, safeguarding of their pensions, the ability to retire prematurely, and the payment to them of compensation. The White Paper also renamed the Colonial Service as Her Majesty's Overseas Civil Service, or HMOCS. A further White Paper of 1960 refined those arrangements.

There are some 700 members of HMOCS in Hong Kong. They have contributed enormously to the success of Hong Kong and many of them wish to continue in the service of the Hong Kong Special Administrative Region Government after 30th June 1997. But, like their predecessors in other territories, they are concerned about their future and need to know how they will he treated. To give those officers a guarantee that their services would he welcomed by the future Hong Kong Special Administrative Region (SAR) Government, China and Britain agreed and the Joint Declaration makes it clear that, after 30th June 1997, foreign nationals could continue in the service of the SAR Government on terms and conditions of service no worse than before.

The Joint Declaration also provides that the pensions of all Hong Kong civil servants, which includes members of HMOCS and their dependants, would continue to he paid by the SAR Government. However, the Joint Declaration also provides that, after 30th June 1997, the top 20 to 30 posts in the Hong Kong public service should he held by Chinese nationals. Those members of HMOCS who stay on will not he able to aspire to those senior positions. The process of constitutional change will, therefore, inevitably limit their career prospects.

By 1989, Hong Kong HMOCS were pressing the British Government to give them the same package of benefits provided to their predecessors in other former dependent territories. Their representative body, the Hong Kong HMOCS Association, argued forcefully that its members were in the same position as their predecessors and that the British Government were honour bound to treat them in the same way. They were supported by the Overseas Service Pensioners' Association, known as OSPA. OSPA represents the interests of former members of HMOCS from Hong Kong and elsewhere.

After careful consideration, the British Government accepted the association's request for an HMOCS package of benefits. In formulating detailed proposals, we considered the arrangements made in 42 previous cases as well as the particular circumstances of Hong Kong. The package which we propose to implement reflects those considerations as well as the outcome of discussions with the two associations, and, of course, the Government's responsibility to balance the interests of Hong Kong HMOCS and those of British taxpayers.

Subject to Parliament's agreement, it is proposed that Hong Kong HMOCS members and pensioners should be offered the following benefits. 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 1st July 1996 and 30th June 1997.

HMOCS members would be paid compensation for loss of the Secretary of State's protection and career prospects. The proposed compensation arrangements would be broadly similar to previous HMOCS compensation schemes. There would be a cap on compensation of £120,000 at 1992 prices and HMOCS members would be paid their compensation gross. The cost of any UK tax liability would be met directly by the British Government. The compensation arrangements would cost about £47 million at current prices.

HMOCS pensions will continue to be paid in Hong Kong dollars by the Hong Kong Special Administrative Region Government after 30th June 1997. In line with the policy in the 1954 and 1960 White Papers, and subsequent practice, the British Government intend to provide Hong Kong HMOCS with pension protection. But, unlike previous cases, Her Majesty's Government have decided not to protect the full sterling value of Hong Kong HMOCS pensions at the date of change in sovereignty.

As Hong Kong HMOCS receive salaries which have a greater purchasing power than those of their predecessors and their British counterparts, the Government propose that their pensions be protected at a level broadly equivalent to the pensions received by officers in equivalent grades in the British public service. This principle of broad comparability underlies the proposed sterling pension safeguard scheme.

The British Government would not incur any significant liability under this particular scheme unless the Hong Kong dollar fell substantially in value. This is most unlikely to happen in the foreseeable future in view of Hong Kong's economic stability and the publicly stated commitment by both the Hong Kong authorities and the Chinese Government to maintain the linked exchange rate between the Hong Kong dollar and he US dollar. Copies of the proposed compensation schemes and the proposed sterling pension safeguard scheme were placed in the Libraries of both Houses before Second Reading in the House of Commons.

HMOCS officers who retire prematurely would be given financial help in finding re-employment or retraining. This help 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 HMOCS in Hong Kong. They have accepted that this is a matter for the British Government.

An additional element of the package which does not depend on the Bill for its implementation is a proposed amendment to the regulations on supplementary pension for overseas service, known as SPOS. These regulations ensure that increases in all HMOCS pensions, and 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 SPOS to take into account small reductions in the value of the Hong Kong dollar relative to sterling. This should provide real benefits to Hong Kong pensioners, particularly over the long term.

The HMOCS Association has accepted the package and has urged the Government to enact the Bill as soon as possible. OSPA also supports the Bill, but it has argued that the Government should propose a more generous pension safeguard scheme. We have considered carefully OSPA's arguments but we believe that our current proposal strikes a fair balance between the interests of HMOCS pensioners and British taxpayers.

In conclusion, I urge noble Lords, in considering the Hong Kong (Overseas Public Servants) Bill, to bear in mind the contribution which HMOCS officers have made to Hong Kong, and the honourable record which the British Government have established in providing a reasonable package of benefits to HMOCS upon the ending of British sovereignty. It is only right that HMOCS officers in Hong Kong should receive benefits similar to those provided to their predecessors. I beg to move.

Moved, That the Bill be now read a second time.—(Lord Cheshani.)

5.33 p.m.

Baroness Blackstone

My Lords, from these Benches I welcome the Bill. Indeed, the Labour Party is happy to accept it in its present form without amendment. The noble Lord, speaking for the Government, has made absolutely clear the need to provide a package of benefits for expatriates serving in the Hong Kong Civil Service and judiciary. As he said, there are around 700 men and women in the overseas service in Hong Kong who were recruited on pensionable terms before the Sino-British Joint Declaration. I wish to ask for clarification on one matter. The preamble to the Bill makes clear that there are about 500 officers and members of the judiciary who arc likely to benefit under the provisions of Clauses 2 and 3(1) of the Bill. Perhaps the noble Lord can explain, when he replies to the debate, the difference between the figure of 700 he mentioned and the figure of 500 which appears in the preamble. However, we accept both the scheme for those who will retire prematurely and the second scheme for those who wish to continue after 30th June 1997 when Hong Kong is handed back to China and becomes a Special Administrative Region Government within China.

If I may say so, the Chinese Government will have the good fortune to inherit a civil service of the utmost integrity, untainted by the corruption which has become all too common in some other parts of the region. We on this side of the House are grateful to the Hong Kong Overseas Civil Service for the vital role it has played in recent years while Hong Kong has continued as a dependent territory. It has been of enormous—indeed crucial—importance in providing back-up and support to the joint liaison group in the difficult path to the transfer of sovereignty. I have no doubt that it will continue to play an important part in the remaining 18 months before the hand-over finally takes place. There are still many complex issues that require monitoring and negotiation, including the major infrastructure projects of the container port and the new airport.

When I was in Hong Kong a couple of years ago I met a number of expatriate and Hong Kong Chinese senior civil servants who gave up their time to brief me on a wide range of policy questions affecting Hong Kong at the time. I was enormously impressed by their expertise and their judgment in dealing with a variety of difficult policy problems. If I had any criticism at all, it was of their tendency—at least as I perceived it—to be unnecessarily cautious about some areas of public spending. Given Hong Kong's huge reserves, it seemed to me that more ought to have been spent to provide, for example, public housing of a higher quality and to improve educational provision. As regards poor standards of English—the subject of frequent lamenting in Hong Kong today—large classes in Hong Kong's primary and secondary schools can hardly help. There are many classes of between 40 and 50 pupils. A lack of government generosity in the provision of adult education can hardly help. either. However, those are hobby horses of mine which it would be wrong to pursue further today.

It would also be wrong to raise any of the important questions about which there is some uncertainty concerning the future of Hong Kong after July next year. This is Second Reading of a short, specific and rather technical Bill. I believe, however, it would be right to have a wide-ranging debate on Hong Kong some time in the next few months before we get too close to the hand-over period.

I understand that the Bill is acceptable to the Hong Kong Overseas Civil Service Association which is happy that it should go through in its existing form. Indeed, the noble Lord speaking for the Government assured the House that that was the case. As he made clear, the Bill is apparently in line with the 42 similar schemes introduced over the past 40 years in dependent territories when sovereignty has been handed over. It seems perfectly proper that Hong Kong civil servants should have the same treatment as those who have served elsewhere overseas.

We are also satisfied with the principle of broad comparability with officials at a similar level in the British public service, which I gather underlies the proposed sterling pension safeguard scheme. I hope very much that those overseas civil servants who decide to stay in Hong Kong after 1997 will be able to go on contributing to a system which adheres to the rule of law; which protects the freedom of the press; which remains uncorrupt; and which, as an administration, is publicly accountable for its actions. That is the system which these men and women have served and which they have worked hard to sustain. Let us hope that they can continue to maintain it after 1997. Without it, Hong Kong's prosperity could be jeopardised, and that is something the Chinese leadership in Beijing surely wishes to avoid.

5.40 p.m.

Lord Redesdale

My Lords, the Bill has broad support from all parties. However, there is an area that causes a degree of concern to the Hong Kong pensioners that could be rectified. The issue that I wish to discuss is whether the pensions of Her Majesty's overseas civil servants should be linked to sterling or to the Hong Kong dollar.

The question that springs to mind is why Hong Kong pensioners are being treated differently to those in other former colonies. Since 1960, 42 former dependent British territories have become independent. In almost every case the pensions payable to the overseas civil servants have been paid at a fixed rate of sterling exchange. That pension liability was then taken over by the British Government and paid in sterling. Therefore, civil servants returning to live in the United Kingdom, would be no worse off than their British-based equivalent.

For people facing retirement from Hong Kong in 1997, their pension will be subject to different arrangements: the sterling pensions safeguard scheme. Civil servants' pensions will continue to be paid in Hong Kong dollars after June 1997, but the full sterling value at the change of sovereignty will not be protected.

Calculation is made on the basis of the salary; in Hong Kong dollars in 1991 for the grade at which the civil servant retires, and divided by 21 to give the protected pension in sterling as at 1991. The amount is then up-rated in line with UK inflation since 1991, to give the protected pension figure, described as the notional pension. If at any point the sterling value of the pension falls below the value of the notional pension the Government will make up the shortfall.

If the Government argue, as they did in the other place, that it is unlikely that pensioners will suffer by having their pensions linked to Hong Kong dollars, there will be no extra cost to the Government or the British taxpayer if they are linked to sterling.

However, if, as many of the Hong Kong pensioners fear, there is a drastic fall in the value of the Hong Kong dollar after 1997, that situation will not be covered comprehensively by the Bill. The British taxpayer will make savings at the expense of the former civil servants. I hope that that reasoning does not form the basis of this provision in the Bill.

Furthermore, the Government have sought to limit their liability. The maximum contingent liability, based on the proposition that the Hong Kong dollar would be worthless in 1997, would be £130 million spread over 50 years. The liability would diminish rapidly with the passage of time and could be expected to halve within only eight years.

The fundamental provision of the proposed scheme is that all overseas pensions should be redetermined nationally on the basis of the officers' retirement post, converted into sterling by a divisor of 21, using an exchange rate of 21 Hong Kong dollars to the pound. If in the future, due to a fall in the sterling value of the Hong Kong dollar, a pensioner's monthly pension payment in sterling is less than his notional sterling pension, then the British Government will pay a balancing supplement.

There has been considerable concern among Hong Kong pensioners about the exchange rate figure of 21 Hong Kong dollars that has been chosen by the British Government. On 1st January 1992 the exchange rate was approximately 14.6 Hong Kong dollars to the pound, but using the exchange rate of 21 Hong Kong dollars to the pound a pensioner would receive only 69.5 per cent. of his pension in sterling. Can the Government explain why that nominal figure has been chosen? I suggest that the deal does not represent a fair balance between the interest of the pensioners and the British taxpayer.

This is a retrogressive scheme as the greatest protection is provided to the Hong Kong civil servants who are the most highly paid in relation to their UK counterparts. The level of protection decreases in line with the decline in the extent by which Hong Kong salaries exceed or are below the UK civil servant equivalent. Therefore, those whose pensions are lowest will have the difference made up the least, which is the opposite of the precept of fair play which the scheme is said to promote. The variation is 136 per cent. at the top end and 52 per cent. at the bottom end.

It would give the Hong Kong pensioners peace of mind if the Hong Kong dollar provision could be amended. The future of Hong Kong after reversion to China in 1997 could have unforeseen effects on the Hong Kong dollar and it would be unfortunate if the British Government were to leave former civil servants in a state of anxiety.

5.45 p.m.

Lord Blaker

My Lords, as a former Foreign Office Minister with responsibility for Hong Kong and a former chairman of the All-Party Hong Kong Parliamentary Group, I am happy to support the Bill. However, I have two reservations which reflect the concerns of the Overseas Pensioners' Association (OSPA) and it is right that those concerns should be fully expressed.

Fifty years ago Hong Kong's economy was in ruins. Hong Kong has achieved an economic miracle, as remarkable as that of any other country in the world. Two factors led to that miracle: the energy and skills of the people of Hong Kong; and, secondly, the rule of law, the absence of corruption, the fairness, integrity and wisdom of the administration of Hong Kong. The people responsible for that administration are those who are the subject of the Bill.

Hong Kong is executive-led in a way that other colonies were not as they approached independence. There is no period of ministerial government in Hong Kong preceding the transfer out of British sovereignty. Therefore, Parliament has an obligation to ensure that Hong Kong civil servants, police and judiciary, are fairly treated.

The second respect in which Hong Kong differs from other colonies is economic aid. Over the past 50 years Hong Kong has received no economic aid from the United Kingdom apart from some trivial sums after the Second World War. That situation was due to a large extent to the people who are concerned in the Bill: police, civil servants and the judiciary. Vast amounts of aid have been given to other former colonies. The UK has paid, as a form of aid, all the pensions of United Kingdom civil servants from most other ex-colonies. That point is worth bearing in mind as we consider the Bill.

The normal practice with other colonies approaching separation from the United Kingdom has been for a public officers' agreement to be signed which guaranteed maintenance of pensions of overseas service officers at a rate which reflected the official rate of exchange at or near the date of independence. In Hong Kong notional pensions are to be calculated from a base of notional salaries from 1st January 1992, five-and-a-half years before independence. The value of the pension is to be safeguarded only at a level of 21 Hong Kong dollars to the pound. That figure, to which the Hong Kong dollar has never sunk, has been chosen to bring Hong Kong pensions roughly in line with those of UK civil servants of broadly comparable grades.

It is the view of OSPA that it would be fairer to follow the precedent that was set for other countries. If the date of 1st January 1992 is to be taken as a base, why is the figure not 14.6, which was the rate of exchange for the Hong Kong dollar at that date?

If the reasoning behind those arrangements is that Hong Kong pensions are higher than those of UK civil servants, has that principle been applied to any other colony? If the pensions of those from any other colony have been below the level of UK civil servants' pensions, has the relevant public officers' agreement brought their pensions up to UK levels? OSPA believes that the divider of 21 is unfair, that the methodology for arriving at that figure is unsound, and that it will favour those who are most highly paid in relation to their British counterparts and disfavour those who receive less than their British counterparts.

My second reservation is as regards the choice as the base date of 1st January 1992. As my noble friend will he aware, this has adverse implications for those who retire after that date. The notional pension as at that date is increased only by the increase in the retail prices index in the United Kingdom, and not by the increase in the salary of the Hong Kong or United Kingdom officer. It is well known that salaries increase at a faster rate than the cost of living in general.

That is particularly relevant in the case of the Hong Kong police. I have a letter from a senior Hong Kong police officer who retired in July 1995, whose counterpart's salary increased by 22 per cent. between 1992 and 1995. The Hong Kong officer will lose the benefit of the increase received by his UK counterpart. Incidentally, that retired Hong Kong officer's pension will be safeguarded under the Government's plan at only 44 per cent. of its present level.

Therefore OSPA asks, and I ask, why was 1st January 1992 chosen? Why is it not a date in 1997, or even 1st July 1997? No doubt many calculations have to be made because of the many civil servants involved. But that must have been true for any colony as it approached independence. I understand that OSPA suggested that if the base date had to be 1st January 1992, the divider should be 14.6 which was the rate of exchange at that date.

I welcome the Bill, but I believe that the safeguard scheme needs further examination. I hope that my noble friend will consider what I have said, and that Ministers will be prepared to meet again with OSPA to see whether its concerns can be met.

5.52 p.m.

Lord Wilson of Tillyorn

My Lords, perhaps I should start by declaring that I have no financial interest in the Bill. Although I have had the privilege, and indeed the great pleasure, of serving with the Hong Kong Government for nine or more years in different capacities, my pension does not depend on the Hong Kong Government—more is the pity.

The Bill is an enabling measure. However, as I see it, it is an enabling measure in two parts. One has immediate effect once the Order in Council is brought in. The other is hypothetical and a contingency case. I should like to deal with those two separate aspects.

Hong Kong is immensely fortunate in its public service. It would be quite wrong to say that the dynamism of the territory—the extraordinary way in which it can seize any opportunity and not be fazed by problems which would completely destroy a different society—is simply due to the public service. It is due to the people of Hong Kong, but those people are operating within an environment created by the public service. Hong Kong owes a great deal to its public servants, whatever their particular nationality and from wherever they come.

I was in Hong Kong last week. I had not been there for some three and a half years. It was enormously impressive to see what is being achieved despite the political bickering in which China, Britain and Hong Kong are sometimes engaged and which is a sad diversion from the practical issues that have to be faced. To see a new airport literally rising out of the sea, a beautiful, remarkable new bridge almost complete—it will be one of the wonders of east Asia—roads, reclamation, and university development, which no doubt impressed the noble Baroness, Lady Blackstone, is immensely encouraging. Again, those achievements are not due to the Hong Kong public service alone. They can be attributed to the energy, the dynamism and the positive attitude of the people of Hong Kong. However, Hong Kong's public service, which has continued to serve with a high degree of efficiency despite political uncertainties, has contributed in no small measure to that success.

It is perhaps invidious that we should be dealing with only one part of the public service, Her Majesty's Overseas Civil Service, because the prosperity and success of Hong Kong has depended on all the Civil Service. However, we have a particular obligation to HMOCS. As the Minister said, there is no doubt that the civil servants' position is in some ways changed by the transfer of sovereignty and by the provisions of the Joint Declaration. They cannot rise to the top jobs in Hong Kong. It is right that we should make provision, as has been made in analogous circumstances in other territories.

It is good that the compensation arrangements are made in such a way that those who wish to stay on can do so. They are not obliged to retire before 1st July 1997. It is encouraging, too, that substantial numbers of members of HMOCS in Hong Kong are willing to stay on. To confuse matters, the figures that I have indicate that there are some 550 members of HMOCS in Hong Kong. Of those 250 have said that they wish to stay on; 150 are undecided; and 140 have said they will definitely leave. For that number to stay will he very much to the advantage of Hong Kong.

We have an obligation to the individuals in HMOCS. We have a strong obligation also to ensure that the new Hong Kong, the Hong Kong Special Administrative Region, is set up on 1st July 1997 in the best possible way. I believe that the provisions in the Bill for compensation and the arrangements to help those who leave to gain other jobs are good and, from my discussions in Hong Kong, much welcomed by members of HMOCS.

The second element of the Bill concerns the safeguarding of the sterling value of pensions of members of HMOCS in Hong Kong. Like all noble Lords who have spoken I believe that that contingency element is unlikely to arise. At present the Hong Kong dollar is strong against the UK currency. The Hong Kong dollar is tied to the US dollar. I do not see reason to believe that there will be a sudden crash in the value of the Hong Kong dollar. Nevertheless, many people fear that that might occur. In previous analogous circumstances, arrangements have been made to safeguard the sterling value of pensions. Therefore it is right that there should he arrangements for members of HMOCS in Hong Kong. But those arrangements should be fair, and accepted as fair by the people affected.

There can be no better suggestion than that of the noble Lord, Lord Blaker, who knows a great deal about Hong Kong and who has been a good friend of the colony at Westminster. It is not apparent to me that the arrangements now being considered—that is, a divider of 21 dollars to the pound—works out as being fair and an arrangement which would he broadly acceptable.

It is difficult to make comparisons between the Hong Kong Civil Service and the UK Civil Service. I have served in both, in Whitehall and in Hong Kong. I have immense respect for both civil services, but they are different. If one wanted a civil servant to write a brilliant submission, I should choose Whitehall. If one wanted a person to go out to deal with a typhoon, the arrival of millions of people at the border, or the development of a public housing system, a new airport or new universities, I should choose the Hong Kong Civil Service. One cannot compare the two. As the noble Lord, Lord Blaker, said, Hong Kong is different. A senior civil servant or what would be called in Hong Kong a secretary is equivalent to a Minister in this country and is in a front line position. It is therefore difficult to make comparisons.

The other difficulty is that if one chooses a divider like 21 dollars to the pound and tries to bring the guaranteed pension down to the level of the equivalent in the UK, there will be cases of hardship. I am sure that many Members of your Lordships' House will have received letters expressing anxiety. A person on a relatively low pension may find that the guarantee is at a very low level. I hope that we will not simply be guided by jealousy about the high salaries paid in Hong Kong nor by jealousy about the resulting high pensions. I hope that it will be possible to consider previous analogous cases in other dependent territories and to find a system which is nearer to what will be accepted as fair. I am conscious that for those who retired some years ago the Government would rightly say that they have benefited from windfall gains because they have had increases in pensions dependent on inflation in Hong Kong which has been much higher than inflation in the UK. However, I cannot believe that it is beyond he wit of man or those who devise such schemes to come up with a better way of dealing with the problem and perhaps a better divider along lines suggested by many of those involved.

I warmly welcome the Bill. I hope and trust that it will be enacted soon so that all those involved can be certain about their future and the Hong Kong Government can make the necessary arrangements for filling the places of those who leave. I also hope that the Minister will be prepared to consider the arguments put forward, both in your Lordships' House this evening and elsewhere, and will be prepared to look again at the precise way in which the sterling safeguard arrangement will work.

6.4 p.m.

Lord Marlesford

My Lords, with your Lordships' permission I wish to take a few moments in the gap to support the remarks made by my noble friend Lord Blaker and the noble Lord, Lord Wilson of Tillyorn. I have been lucky enough to be associated in one way or another with Hong Kong since the early 1960s. I remember, when I was a journalist for the Economist, writing a survey in 1975 or 1976. I said specifically that the quality of civil servants in Hong Kong was in my opinion absolutely equal to the best in Whitehall.

Therefore, we are talking about people of enormous quality and calibre. We are also talking about people who have given great service to Hong Kong. We must remember that for several decades Hong Kong has been a place where much money has been made for the benefit of those making it but also for the benefit of the people of Hong Kong and the people of China.

It is worth remembering that, in comparison with the sums of money made by people in business in Hong Kong, the Civil Service has not been highly paid. Yet, so far as I am aware—and I am not talking about the unfortunate period involving the police—on the administrative side of the Civil Service the administration has been of the utmost integrity and of the highest quality. I hope that it would be unacceptable to your Lordships' House if this evening the Government were not prepared to say that they would consider some of the arguments put forward that the arrangements proposed in the Bill as drafted are not adequate to give total fairness or were not prepared to pay tribute to those who have served Hong Kong and Her Majesty's Government so magnificently for many years.

6.6 p.m.

Lord Chesham

My Lords, I am pleased that the Hong Kong (Overseas Public Servants) Bill has received a broad welcome from the House. It is essentially a non-political, technical, good housekeeping measure which recognises the British Government's responsibilities to the last serving members of HMOCS. I am sure that Hong Kong HMOCS officers and pensioners will appreciate the warm tributes that noble Lords paid to their commitment and contribution to Hong Kong over many years.

I was not surprised that the House focused on the detail of the package of benefits, rather than on the principle of providing Hong Kong HMOCS with a package in the first place. After all, we are not doing anything for Hong Kong HMOCS which was not done for their predecessors in many other former territories. I note that no speaker questioned whether such benefits should be provided at all and thus doubted the need for this piece of enabling legislation. All noble Lords recognised that this Bill is needed and must be implemented without delay.

Some noble Lords questioned certain aspects of the proposed package. It may be helpful if I say a little more about our approach to the benefits, in particular compensation and pension protection. I wish to answer the point made by the noble Baroness, Lady Blackstone. The figure of 700 is the number of HMOCS officers in Hong Kong when the Bill was drafted; 500 is the approximate number of officers who will not have reached the normal retirement age by 1st July 1997. They will therefore be eligible for compensation.

The noble Lord, Lord Wilson, mentioned compensation. We believe that officers who decide to stay on after 1997 should he compensated because HMOCS officers, whether they leave or stay on, will suffer a loss as a result of constitutional change. Even if they stay on, their promotion prospects will in most cases be seriously affected. Also, if compensation were offered only to those who left, it would encourage officers who might otherwise stay on to leave the service of Hong Kong. It would be bad if Hong Kong lost the benefit of their extensive knowledge and experience at this critical stage of the transition.

I come now to the sterling pension safeguard scheme on which a number of interesting points have been made. I understand why some noble Lords have sympathy with the case put forward by the OSPA, but it is important to look at the facts. Let me explain a little more about the proposed scheme and why the Government believe that it strikes a fair balance between the interests of HMOCS pensioners and British taxpayers.

At present Hong Kong pensions are paid by the Hong Kong Government in Hong Kong dollars. Pensioners who have retired to Britain are not paid their pensions in sterling. Neither the Hong Kong Government nor the British Government provide them with any guarantee of the sterling value of their pensions.

The Sino-British Joint Declaration provides solid guarantees on the continued payment of pensions by the autonomous Hong Kong authorities after 1997. Thus Hong Kong pensioners will be in exactly the same position after 1997 as they are at the moment. What we are therefore talking about is the British Government providing a pension protection scheme which does not exist at the moment. And we are not asking HMOCS pensioners to give up in exchange any increases in the sterling value of their pensions as a result of an appreciation in the value of the Hong Kong dollar.

My noble friend Lord Blaker spoke about similar treatment. Hong Kong pensioners are not in the same position as their predecessors. Their pensions are not paid on the basis of the fixed exchange rate with sterling; their pensions are, on average, far higher. The issue therefore was what additional protection over and above that which exists at the moment the British Government should provide for Hong Kong HMOCS pensioners.

As to why 1992 was taken as the marker date, that was when we first proposed the scheme. Because of Hong Kong's varying exchange rate, a fixed date had to be set in order to work out the contingent liability involved. Pensions linked to 1992 would be increased in line with UK inflation.

In reply to the noble Lord, Lord Redesdale, unlike in other former British territories, the salaries of HMOCS in Hong Kong, and thus their pension levels, are on average far higher than those received by public servants in this country. Also, Hong Kong pensioners have received, and are likely to continue to receive, large pension increases awarded by the Hong Kong authorities. These increases are based on the rate of inflation in Hong Kong, which has for some years been over 8 per cent., and which of course has no relevance to the circumstances of pensioners who have retired to Britain. We therefore had to ask ourselves whether it would be fair to ask British taxpayers to protect the full sterling value of Hong Kong HMOCS pensions and any future pension increases.

Therefore, we have proposed an amendment to the SPOS regulations which would for the majority of HMOCS pensioners protect their pensions at 100 per cent. of the original sterling purchasing power, unless there was a severe fall in the value of the Hong Kong dollar. Over time, this amendment will provide real benefits to Hong Kong pensioners.

Against that background, we concluded that the British Government should not guarantee the full sterling value of Hong Kong HMOCS pensions, and that we should provide a protection scheme which would act as a safety net in the most unlikely circumstances of a severe decline in the value of the Hong Kong dollar. We considered various options for this scheme. We looked, for example, at protecting a percentage of the original sterling purchasing power of HMOCS pensions. But we decided that this would not be fair to pensioners who had retired from Hong Kong when the Hong Kong dollar was weak. We also looked at protecting a percentage of the current sterling value of pensions, but rejected this as the potential liability would depend on future pension increases awarded by Hong Kong over which we have no control.

In the end we settled on a scheme based on comparability. The operations of the scheme are complex. But the intention is to set sterling pension protection for Hong Kong HMOCS at a level broadly comparable to the pensions received by officers in equivalent grades in the Home Civil Service. To respond to the noble Lord, Lord Wilson, it is on broad comparability. There cannot be specific ones.

I know that OSPA has criticised certain technical aspects of our approach, such as the grade comparison used to determine comparability. But the fact is that the exercise was, if anything, generous to Hong Kong HMOCS. For example, some of the grade comparisons were favourable to Hong Kong officers and pensioners, and we did not take account of Hong Kong pension earning rates which are, on average, about 20 per cent. higher than those of their British counterparts.

OSPA has pointed out that under our scheme the protected pensions of some Hong Kong pensioners would be less than the pensions received by their British counterparts. The fact is that over 75 per cent. of Hong Kong serving officers and pensioners would have their pension protected at a level higher than their counterparts in this country, and indeed higher than the pensions received by pensioners from other former dependent territories. In my view, our proposed scheme, taken together with the SPOS amendment is not ungenerous.

There are two other proposals in the Bill, to allow officers to take early retirement and to receive some help in finding new employment. We are not proposing anything extra for Hong Kong HMOCS. Their predecessors were allowed to retire prematurely, and it is understandable that some members of HMOCS in Hong Kong would not wish to continue in service when British sovereignty over the territory comes to an end. We have proposed that HMOCS officers who take premature retirement should be given some help, possibly by a consultant, to find new employment, and that the British Government should make a cash-limited contribution to the costs involved.

The Governor of Hong Kong cannot allow members of HMOCS to take premature retirement until the legislation and one of the Orders in Council are in place. Officers have been told that the intention is to allow them to retire from 1st July 1996 in order to phase departures before the transfer of sovereignty on 1st July 1997. The HMOCS Association, which is aware of the urgency attached to the Bill, supports its proposals and its early enactment. I commend it to noble Lords in the hope that it can complete its passage through this House as quickly as possible.

On Question, Bill read a second time, and committed to a Committee of the Whole House.