For discussion
on 12 December 1997
FCR(97-98)79
ITEM FOR FINANCE COMMITTEE
HEAD 46 - GENERAL EXPENSES OF THE CIVIL SERVICE
Subhead 022 Passages
Members are invited -
- to approve the introduction of a School Passage Allowance in lieu of the provision of air tickets in respect of children of eligible civil servants being educated overseas and the basis for setting the initial rates of the School Passage Allowance for implementation in mid-1998;
- to approve a new basis for revising the rates of the Leave Passage Allowance; and
- to delegate to the Secretary for the Treasury the authority to approve future revisions to the rates of School Passage Allowance and Leave Passage Allowance in accordance with the approved basis.
PROBLEM
The arrangements for providing school passages to eligible civil servants and the current basis for revising the Leave Passage Allowance (LPA) are out of date and should be modernised.
PROPOSAL
2.The Secretary for the Civil Service proposes -
- in respect of school passages, to replace the current provision of air tickets with a fully accountable School Passage Allowance (SPA) and set the initial rate of the allowance at 75% of the published student fares, or if unavailable, at 75% of the lowest applicable Economy Class fares for the respective routes for a child aged 12 and over. For a child below the age of 12, the rate of the allowance will be set at 75% of that of a child aged 12 and over;
- in respect of leave passages, to revise the rates of the LPA for both local and overseas officers on 1 April every year according to changes in package tour prices, as measured by the year-on-year change in such prices within the Hang Seng Consumer Price Index (CPI) for the 12-month period ending February of the year;
- to delegate to the Secretary for the Treasury the authority to set the initial rates of SPA for implementation in mid-1998 (the precise time will be that immediately following the termination of the Air Passage Agreement) based on (a) above and to revise them annually thereafter on 1 April according to changes in air fare prices as reflected in the Composite CPI for the 12-month period ending February of the year; and
- to delegate to the Secretary for the Treasury the authority to approve future revisions to the LPA rates in accordance with the revised basis in (b) above, with the next revision due on 1 April 1999.
JUSTIFICATION
School Passages
3.School passages available to children of eligible civil servants studying abroad are provided in kind under the Air Passage Agreement. This Agreement has been in place since 1958 and may be terminated at six months' notice. The current Agreement covers tickets for all duty and school passages.
4.School passages under the Air Passage Agreement are provided at published fare rates (i.e. fares approved by the Civil Aviation Department). To achieve cost savings, it is considered opportune to terminate the Agreement to allow the use of cheaper market fares in the provision of such passages.
5.We therefore propose to terminate the Air Passage Agreement and introduce an SPA to replace the provision of air tickets. We propose to set the SPA at 75% of the published student fare, or if unavailable, at 75% of the lowest applicable Economy Class fare for the respective routes. We have determined this rate having regard to the normal price differential between published fares and market fares, as well as the need for most students to travel at peak seasons. For a child below the age of 12, we propose to set the rate at 75% of that of a child aged 12 and over to reflect the discount fare normally applicable to young passengers. An illustration of what the new SPA rates would have been if they were based on the current published fares is at Enclosure 1.
6.Under our proposal, staff may use the allowance to purchase tickets for their children from any source. Indirect flights with stopovers may be used. Any unspent allowance not exceeding the child's total entitlement for a 12-month cycle may be carried forward to the next cycle. We propose to adjust the allowance annually on 1 April according to changes in air fare prices as reflected in the Composite CPI for the 12-month period ending February of the year. Enclosure 2 shows the year-on-year changes in the air fare prices within the Composite CPI since 1992-93.
7.Subject to Members' approval of the introduction of SPA, we shall give six months' notice at the end of 1997 to the airlines concerned to terminate the Agreement by mid-1998. This will enable us to implement the revised school passage arrangements in July 1998, but bookings made under the Agreement will be honoured during the tickets' validity period. We will determine the appropriate SPA using the methodology set out in paragraph 5 above and the published fares prevailing then as the basis. Upon the termination of the Agreement, the purchase of tickets for duty related passages will be dealt with in accordance with normal Government procurement procedures.
Leave Passages
8.Officers on overseas terms are entitled to leave passages in the form of air tickets if they take standard passages, or an LPA if they take non-standard passages. Their LPA rates are pegged to the published air fares of the respective routes between Hong Kong and their country of origin in a class of travel appropriate to their eligibility. Local directorate officers and overseas officers from the United Kingdom (UK) who are eligible for Economy Class travel have their rates pegged to the discounted Business Class contract fares between Hong Kong and London under the Air Passage Agreement. Since 1992, we have allowed staff to use their LPA to cover package tours and other travel related expenses. Currently about 95% of the recipients use LPA to meet package tour expenses.
9.The pegging of LPA for local directorate and UK officers to the discounted Business Class contract fare is no longer appropriate especially upon the termination of the Air Passage Agreement. To rationalise the basis for adjusting the LPA rates so as to reflect the use of LPA in present day circumstances, we consider it more appropriate to revise the LPA on an annual basis by reference to the year-on-year change in package tour prices within the Hang Seng CPI. We provide at Enclosure 3a comparison of the changes in the LPA rates for officers entitled to Economy Class passage for the UK route and changes in package tour prices within the Hang Seng CPI since 1990-91.
10.Subject to Members' approval of the revised basis, we propose to adopt the prevailing LPA rates as the initial rates with immediate effect. We will revise the rates annually thereafter on 1 April using the new basis of package tour prices movements in the Hang Seng CPI, with the next revision due on 1 April 1999. To honour Government's commitment, we will undertake to provide overseas officers with an air ticket if the entire amount of LPA for a full cycle is insufficient to allow the officer to procure a direct passage of his entitled class between Hong Kong and his country of origin. This is in line with the officer's terms of employment.
Delegation of Authority
11.As we need to give six months' notice for the termination of the Air Passage Agreement and the initial rates of SPA will be set on the basis of the prevailing published student fares/lowest applicable Economy Class fares at the time of implementation, we propose that Members delegate to the Secretary for the Treasury the authority to approve the initial SPA rates for implementation in mid-1998 and to revise them annually thereafter in accordance with the changes in air fare prices within the Composite CPI. We also propose that Members delegate to the Secretary for the Treasury the authority to revise the LPA rates annually thereafter in accordance with the changes in package tour prices within the Hang Seng CPI. For the first annual revision for SPA and LPA due on 1 April 1999, which will cover a period shorter and longer than a normal 12-month period respectively, we will revise the rates in accordance with the relevant price movements on a pro-rata basis.
FINANCIAL IMPLICATIONS
12.We expect that implementation of the proposed SPA, which is 25% lower than the published student fare or lowest Economy Class fare, will reduce school passage expenditure, based on the same take-up rate, by about $17 million. As regards the LPA, since the initial rates will be pitched at the prevailing rates for eligible local directorate and overseas officers, the implementation of the revised basis for future revisions will not have any immediate financial implications. As for future adjustments of SPA rates based on air fare prices reflected in the Composite CPI and of LPA rates based on package tour prices reflected in the Hang Seng CPI, it is difficult to estimate whether the new basis of adjustment will result in additional expenditure or savings, as this depends on whether future increases in air fare prices and package tour prices will be higher or lower than increases in contract air fares.
BACKGROUND INFORMATION
13.Officers who were offered appointment on or after 1 August 1996 are no longer eligible for Overseas Education Allowance and school passages. Those who were offered appointment before that date may continue to be eligible for school passages for up to four dependent children who are in full time education at recognised overseas educational establishment. Children of local officers must be aged 9 or over and receive education in the UK in order to be eligible for school passages. For each 12-month cycle, a child aged under 19 is eligible for two direct Economy Class return tickets, and a child aged between 19 and 21 one return ticket. About 98% of the school passages are on the UK route, of which 85% are taken within a short period during peak seasons in September, December and July.
14.Before 1981, we provided leave passages only to overseas officers to their country of origin. Members approved the extension of this benefit to local directorate officers from 1 November 1981 on grounds of parity of treatment
between overseas and local officers. For historical reasons, LPA rates are pegged to published air fares. Prior to 1992, LPA could be used for meeting passage costs only. Since July 1992, we have permitted LPA recipients to use the allowance to cover holiday-related expenses including accommodation and package tours. This is to take account of the increasing availability of package holidays and to bring the benefit more into line with private sector practice. Currently about 95% of the recipients use LPA to meet package tour expenses. In 1995, we proposed to the Finance Committee to adopt the movement of package tour prices within the Hang Seng CPI to adjust the LPA for local directorate officers (adjustment of LPA for overseas officers to continue to be pegged to published fares). We withdrew the paper in view of Members' concern about the disparity in benefits for local and overseas officers and the lack of detailed information. Members then suggested that if the Administration wished to pursue the matter, the proposal should first be put to the Panel on Public Service for consideration.
15.In its consideration of the Director of Audit's Report No. 27, the Public Accounts Committee endorsed the Director of Audit's recommendation that the Administration should consider alternative arrangements to providing school passages with a view to achieving cost savings. The Committee also recommended that the pegging of LPA for local directorate and UK officers to the discounted Business Class contract fare should be reviewed and that direct flights on the UK route should not be used as the sole basis for determining LPA.
16.We have consulted the four Staff Sides Central Councils and the advisory bodies on civil service pay and conditions of service on the proposed changes to the school and leave passage arrangements. They supported the proposals. The Provisional Legislative Council Panel on Public Service also endorsed our proposals at its meeting on 24 November 1997.
Civil Service Bureau
December 1997
Enclosure 1 to FCR(97-98)79
Illustration on Calculation of Initial Rates of School Passage Allowance
(The actual allowance will be determined according toprevailing student air fares as at the date of implementation)
Destination
Country/City
| (a)
Published student
fare per return
Economy Class
ticket or the lowest
applicable
Economy Class
return fare
(as at October
1997)
| (b)
Proposed
allowance per
return passage
for a child aged
12 or above
(75% of (a))
| (c)
Proposed
allowance per
return passage
for a child
below 12
(75% of (b))
|
|---|
| UK
|
| London | $15,050 | $11,300 | $8,500
|
| Australia
|
Brisbane/
Melbourne
/Sydney
| $14,200 | $10,700 | $8,000
|
| Perth | $14,260 | $10,700 | $8,000
|
| Malaysia
|
| Kuala Lumpur | $5,280 | $4,000 | $3,000
|
| New Zealand
|
Auckland/
Wellington/
Christchurch
| $15,860 | $11,900 | $8,900
|
| USA
|
| Boston/New Haven | $16,270 | $12,200 | $9,200
|
Note -This list only includes places to which children are currently travelling under the School Passage Scheme. For countries not included, the same methodology will be used for determining the allowance for each return passage, i.e. 75% of the prevailing cost of the student fare or of the lowest applicable Economy Class fare (rounded to nearest hundred dollar) for that country as at the date of implementation of the Scheme, plus Composite Consumer Price Index changes.
Enclosure 2 to FCR(97-98)79
Year-on-year Rate of Change of Air Fare Prices within the Composite Consumer Price Index
| Financial year | % change
|
|---|
| 1992-93 | + 2.1%
|
| 1993-94 | + 2.1%
|
| 1994-95 | + 2.2%
|
| 1995-96 | + 2.5%
|
| 1996-97 | + 5.4%
|
Enclosure 3 to FCR(97-98)79
Comparison of LPA, Published Air Fares, and Changes in Package Tour Prices within the Hang Seng Consumer Price Index
Financial
year
| LPA for officers entitled to Economy Class passageon the HK-UK route#
| Adjustment of package tour prices within Hang Seng CPI
|
|---|
| Amount | Rate of
adjustment |
|
|---|
| 1990-91 | $15,442 | + 7.0 % | + 9.9 %
|
| 1991-92 | $15,442 | 0 % | + 3.7 %
|
| 1992-93 | $16,367 | + 6.0 % | + 4.9 %
|
| 1993-94 | $16,367 | 0 % | + 1.0 %
|
| 1994-95 | $18,906 * | + 15.5 % | + 0.6 %
|
| 1995-96 | $22,356 * | + 18.2 % | + 2.3 %
|
| 1996-97 | $23,025 | + 3.0 % | + 2.5 %
|
| Cumulative increase | | + 59.49 % | + 27.50 %
|
| Average annual increase | | + 6.90 % | + 3.53 %
|
Note -
LPA--Leave Passage Allowance
# The Leave Passage Allowance for the Economy Class passage is pegged to the discounted Business Class fare under the Air Passage Agreement.
* The air fares had increased twice during that financial year. The higher fare was taken for the comparison.
