For discussion FCR(96-97)51
on 19 July 1996

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 701 - LAND ACQUISITION
HEAD 91 - LANDS DEPARTMENT
Subhead 221 Clearance of Crown land - ex-gratia allowances
Ex-gratia domestic removal allowance

Members are invited to approve -

1. changes to the existing formulae for calculating the rates of an ex-gratia domestic removal allowance for families compulsorily cleared into public housing as set out in paragraphs 5 and 8 below;
2. revised rates of the allowance as set out in paragraphs 7 and 9, which are calculated on the basis of the new formulae, with retrospective effect from 1 December 1995; and
3. delegation of the authority to approve future revisions to the rates of the allowance in accordance with the new formulae to the Secretary for the Treasury.

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PROBLEM
PROPOSAL
JUSTIFICATION

Permanent Housing
Interim Housing (formerly known as Temporary Housing)
Delegation of authority to the Secretary for the Treasury

FINANCIAL IMPLICATIONS
BACKGROUND INFORMATION
Details of Calculations for New Rates of Allowance for Families Compulsorily Cleared into Permanent Housing
Details of Calculation for New Rates of Allowance for Families Compulsorily Cleared into Full-built Structures of Interim Housing

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PROBLEM

The existing formulae for calculating the rates of an ex-gratia domestic removal allowance (DRA) for families compulsorily cleared into public housing are no longer practicable.

PROPOSAL

2. We propose that -

1. the existing formulae for calculating the rates of the allowance should be changed as set out in paragraphs 5 and 8 below;
2. revised rates of the allowance as set out in paragraphs 7 and 9 calculated on the basis of the new formulae should be introduced with retrospective effect from 1 December 1995 (the date on which the existing rates were due for revision); and
3. authority to approve future revisions to the rates of the allowance in accordance with the new formulae should be delegated to the Secretary for the Treasury.

JUSTIFICATION

Permanent Housing

3. The existing formulae for calculating the rates of DRA comprise three elements -- telephone removal, domestic removal and minimum basic fitting-out. The rate for telephone removal is based on the cost of removing and installing a domestic telephone line charged by the Hong Kong Telephone Company Limited. The rates for domestic removal are the averages of the prices quoted by transportation contractors, depending on the family size. In the case of minimum basic fitting-out works, the rates are based on the tender prices submitted by decoration contractors approved by the Housing Department (HD) for new public housing estates in respect of wall painting, partitioning and floor tiling/skirting. These rates also depend on the family size.

4. Since November 1994, HD has ceased to ask their decoration contractors to submit such tender prices, leaving it up to individual tenants to negotiate with the contractors the prices of the works. This has rendered it difficult for us to operate the existing formulae to determine the rates for minimum fitting-out works. In addition, as individual families have different decoration requirements upon relocation and the costs of the works involved vary greatly in the open market and depend on the quality, it is impracticable to pitch the allowance for minimum fitting-out works at a level which would reflect the actual costs incurred by individual families.

5. Under these circumstances, we have reviewed the existing formulae and concluded that the best alternative would be to delink the rate of the allowance for minimum basic fitting-out from the actual costs of the specified scope of fitting-out works and to regard it as a lump-sum payment aimed at assisting affected families to meet the cost of moving. We will adjust it in line with changes in the Tender Price Index (TPI) applicable to HD's building projects in the corresponding period. An index-based approach will provide a more objective basis for calculating the rates of allowance.

6. Under this approach, the element of the allowance for minimum basic fitting-out (as at 1 December 1994) would be increased by 21.15%, being the change in TPI for the period between the second quarter of 1994 (TPI figure: 468) and the third quarter of 1995 (TPI figure: 567). As a reference, the rate of inflation over the same period using Consumer Price Index (A) is 11.97%.

7. The rates of the allowance are normally reviewed on an annual basis. They were due for revision on 1 December 1995. We therefore propose that the rates calculated on the basis of the new formulae should take retrospective effect from 1 December 1995. The existing and new rates of the allowance for families compulsorily cleared into permanent housing are set out below -

Details of the calculations are set out in Enclosure 1.

Interim Housing (formerly known as Temporary Housing)

8. Under the existing formulae for calculating the rates of the allowance for families compulsorily cleared into interim housing, the rates for minimum basic fitting-out are based on the averages of the prices obtained from HD's maintenance contractors. For the sake of consistency, we consider it appropriate to change the formulae for calculating this element to what we propose for families compulsorily cleared into permanent housing, that is, we will adjust the rates in line with the changes in TPI applicable to HD's building projects in the corresponding period.

9. Based on the above, the existing and new rates of the allowance for families compulsorily cleared into full-built structures¹ in interim housing are set out below -

Details of the calculations are set out in Enclosure 2.

Delegation of authority to the Secretary for the Treasury

10. In order to maintain the real value of DRA, we propose that Members delegate to the Secretary for the Treasury the authority to approve future revisions to the rates in accordance with the movement of TPI applicable to HD's building projects in the corresponding period. We will continue to seek Members' approval on any future changes to the formulae.

FINANCIAL IMPLICATIONS

11. During the period 1 December 1995 to 31 March 1996, about 1 600 families had moved into permanent housing and 1 100 families into full-built structures in interim housing arising from clearance operations. In 1996-97, we estimate that about 4 000 families will move into permanent housing and 3 000 families into full-built structures in interim housing due to various clearances. This will give rise to additional financial implications of about $8.71 million, bringing the total estimated requirement for 1996-97 to about $41.55 million. We shall meet the additional requirement arising from this proposal from the approved provision under Head 701 Land Acquisition of the Capital Works Reserve Fund and Head 91 Lands Department Subhead 221 Clearance of Crown land - ex-gratia allowances as appropriate² .

BACKGROUND INFORMATION

12. DRA is payable to families compulsorily cleared into public housing to help them to meet the initial cost of moving. The rates of the allowance are set according to the type of accommodation offered and the family size. The existing rates were approved on 30 November 1994 by the Secretary for the Treasury under delegated authority to take effect from 1 December 1994. The rates were due for revision on 1 December 1995, but as explained above, we have deferred this exercise in order to consider how the existing formulae for calculating the rates should be revised.

13. We briefed the Legislative Council Panel on Planning, Lands and Works on this issue on 25 June 1996. The proposals in this paper have taken into account the views of the Panel.

Planning, Environment and Lands Branch
July 1996

1 -- Some of the existing rates are in respect of part-built structures in interim housing. However, as HD no longer puts people in part-built structures, which are all under clearance operations, these separate rates are no longer required. Clearees rehoused to multi-storey interim housing with improved facilities comparable in quality to permanent housing will draw allowances at the rates applicable to permanent housing.
2 -- Ex-gratia allowances for clearance of Crown land for projects in the Public Works Programme are charged to Head 701 Land Acquisition while ex-gratia allowances for clearance of Crown land not required for projects in the Public Works Programme are charged to Head 91 Lands Department Subhead 221 Clearance of Crown land - ex-gratia allowances.

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Enclosure 1 to FCR(96-97)51

Details of Calculations for New Rates of Allowance for Families Compulsorily Cleared into Permanent Housing

The new rates are calculated as follows -

2. As regards Column "Telephone Removal", the figure of $530 is what the Hong Kong Telephone Company Limited currently charges for removing and installing a domestic telephone line.

3. As regards Column "Domestic Removal", the figures are the averages of the prices quoted by transportation contractors.

4. As regards Column "Minimum Basic Fitting-out", the figures are the existing rates (based on the tender prices in respect of wall painting, partitioning and floor tiling/skirting ¹as submitted by HD's approved decoration contractors in the second quarter of 1994) adjusted upwards by 21.15%, being the change in TPI for the period between the second quarter of 1994 (TPI figure: 468) and the third quarter of 1995 (TPI figure: 567). The allowance represents a lump-sum payment aimed at assisting affected families with the costs of fitting out their new accommodation upon relocation. As individual families have different decoration requirements and the costs of the works involved vary greatly in the open market and depend on the quality, the allowance does not necessarily represent the actual costs incurred by individual families.

1 -- We have substitued floor tiling/skirting for PVC windguard, which used to be popular among the tenants.

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Enclosure 2 to FCR(96-97)51

Details of Calculation for New Rates of Allowance for Families Compulsorily Cleared into Full-built Structures of Interim Housing

The new rates are calculated as follows -

2. As regards Column "Telephone Removal", the figure of $530 is what the Hong Kong Telephone Company Limited currently charges for removing and installing a domestic telephone line.

3. As regards under Column "Domestic Removal", the figures are the averages of the prices quoted by HD's approved transportation contractors.

4. As regards Column "Minimum Basic Fitting-out", the figures are the existing rates (based on the averages of the prices in respect of the provision of a cooking bench, partitioning and ceiling painting obtained from HD's maintenance contractors in the second quarter of 1994) adjusted upwards by 21.15%, being the change in TPI for the period between the second quarter of 1994 (TPI figure: 468) and the third quarter of 1995 (TPI figure: 567). The allowance represents a lump-sum payment aimed at assisting affected families with the costs of fitting out their new accommodation upon relocation. As individual families have different decoration requirements and the costs of the works involved vary greatly in the open market and depend on the quality, the allowance does not necessarily represent the actual costs incurred by individual families.

1 -- Single persons receive half of the rates for two-person families in respect of the elements of domestic removal and minimum basic fitting-out.

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