Like all good chairman he also has a succession strategy up his sleeve. He is grooming his eldest son to take over. In much the same way as Prince William of Gloucester was taught how to run his family’s farmlands at Barnwell, so another Prince William has been taught about the soil management, although in his case it was done not in the muddy fields of Northamptonshire but in the seminar rooms of St John’s College, Cambridge University where a special course in agricultural administration was devised for him.
When it comes to determining investment decisions, Charles has been keen to promote one issue close to his heart - environmental building and sustainability. Nowhere is the footprint of the prince's green Wellies more visible than on the Poundbury estate in Dorset, in the heart of Thomas Hardy country, where the duchy has owned a large swathe of land since the 14th century. After a conventional plan for development was rejected by the prince in 1988, he turned to the free-thinking neo-classical designer Leon Krier to draw up a blueprint for an environmentally friendly model village on the outskirts of Dorchester. The result was an ambitious plan for four villages with three thousand homes for eight thousand people all working and playing together in self-contained communities complete with schools, shops and offices. Even Charles's biographer, Jonathan Dimbleby, acknowledged that the prince had sometimes shown "a certain insouciance” about the cost of the project and when it was properly costed at many tens of millions of pounds, few were left in any doubt that the project as it stood could bankrupt the duchy.13 Something had to be done. In its place a scaled down version was put forward by another group of architects which prompted an angry Krier to take his story to the Sunday Telegraph where he threatened to resign complaining his role had been undermined and his master plan had been sabotaged. After a hasty exchange of clear-the-air letters, the prince persuaded him to stay on the project at least for the time being - and in 1993 phase one of the watered down development finally got under way.
Over the intervening two decades the project has encountered many other hazards along the route - most notably the major roadblock of planning permission delays. A member of Dorchester's Civic Society described it "a tasteless pastiche of what Dorchester once looked like…It is HRH's theme park."14 Many local residents objected to living check by jowl with commercial properties. By 2014 Poundbury was celebrating its 21st birthday but there was still another eleven years of work ahead, including completing the Queen Mother Square and building five hundred new houses in the North East Quadrant. The latest duchy accounts for 2014 do not spell out how much has been spent on the project up to now and but in the course of two decades it must have eaten up a not inconsiderable slice of the duchy money.
Over the past decade successive parliamentary committees have questioned why the duchy accounts are not inspected by the National Audit Office. Duchy officials have always resisted such a move arguing that the duchy is the private estate of the Prince of Wales and thus falls outside of the purview of the NAO which monitors only public money. The difficulty with this line of argument is that while the income from the estate is generally accepted as private, the capital is not.15 By tradition the Prince of Wales does not have access to the capital or the right to sell it because he is deemed custodian of the lands which must be retained for future Princes of Wales to live off.
The status of the duchy is further complicated by the way in recent years it has begun to appear to behave like a commercial business even though as a private estate it escapes any corporation tax or capital gains tax. In November 2011 the duchy reportedly paid £38,385,500 for a supermarket distribution centre in Milton Keynes16 which it then leased to Waitrose for more than £2m a year.17 It is the leaseholder of the Holiday Inn in Reading and reportedly owns several shops in the area, including a hair and beauty parlour.18
It has also set up two innovative joint ventures with private sector partners. It owns a 50% stake in QMS (Poundbury) LLP, a partnership with a developer to construct an office and retail building in Queen Mother Square in Poundbury. In addition, it possesses 54% of the shares in J.V. Energen LLP, a renewable energy enterprise with local farmers. After investing £6.6m in an anaerobic digestion plant, it made £1.5m in 2013 by selling renewal electricity to the grid.19 By operating in this way the duchy’s joint enterprise is bound to come into competition with other renewable companies and MPs have questioned whether its exemption from corporation tax gives it an unfair advantage. Not surprisingly Charles’s principal private secretary rejected the charge. In 2013 the Public Accounts Committee recommended that “the Treasury should examine the impact on the marketplace of the Duchy engaging in commercial transactions while exempt from tax.”20
The duchy has also been using well its exemption from capital gains tax by selling agricultural land. Admittedly with the Treasury’s permission, in 2012-13 it was able to sell two farms and make a gain of £4m tax free.21 The duchy maintains that this is perfectly above board since the Prince of Wales is not entitled to benefit from the capital gains realised by the duchy which are all reinvested in the duchy for the benefit of future dukes.
“It is a medieval anomaly,” is how the plain-speaking Labour MP Austin Mitchell dismissed such arguments when the Public Accounts Committee heard oral evidence from duchy officials in July 2013. The fine distinction they made between the duchy as a private estate and a commercial business was lost of him: “if something looks like a duck and quacks like a duck, it possibly is a duck…You are really dodging around, aren’t you, because for tax purposes it is not a corporation, but for every other purpose it is a corporation?”22
The committee’s probing threw up two other embarrassing issues: how well do the huge profits of the duchy correspond to the actual needs of the Prince of Wales and why there is a lack of clarity between the prince’s spending on his public duties and his private life.23
Since 2007, the prince has published an annual review disclosing his income, expenditure and tax liability, although for reasons his officials could not fully explain VAT was lumped together with his income tax figure and in one section of the report his National Insurance contributions were included under “tax”. In 2013–14, the Prince of Wales received an income of £19.5 million from the duchy, and £2.1 million income from public sources yet paid only £4.18 million in tax (at the rate of 45%). The reason for this discrepancy is that he was able to offset more than £10 million in expenses.
Much of these are indisputable public or official expenses (including the £9.9m cost of his public duties and charitable activities as well as the £2.9m spent funding the official work of the Duke and Duchess of Cambridge and Prince Harry) but when it comes to the use of his private residence Highgrove House there is potentially a grey area - or rather a green one. Prince Charles is rightly proud of the gardens at Highgrove which are exquisitely maintained. His financial statement discloses that in 2014 £140,000 was spent on total gardening costs in addition to the salaries of 21.3 gardeners (indicating that the cost of maintaining the Highgrove gardens must be sizable – certainly of the order of one hundred thousand pounds and perhaps as high as a quarter of a million). The 2014 annual review states that the “official as well as personal costs [of maintaining the garden] are met from His Highness’s private income” but acknowledges that “the majority of the costs of the garden is allocated to official expenditure” [author’s italics]. In other words, the lion’s share is a tax deductable expense. One of the stated justifications for this is that “the garden is mainly used for visits by members of the public,” with visitor numbers reaching 38,000 in 2013. But in that year the garden was open only between April and October and confined mainly to organised groups, generally on weekdays and not Sundays or when Charles and Camilla were at home. So in practice, the public appeared to have equal or less possible access to the gardens than did the prince, even though the bulk of their costs were deemed official spending.
When this criticism was put to Clarence House, a spokesman replied that the prince and the duchess “sp
ent a lot of time away from Highgrove, and therefore the amount of time Their Royal Highnesses have access to the gardens are in fact quite limited.” He also maintained that the allocation of costs in relation to Highgrove “reflects the use of the garden and house for official engagements.”24
Charles is indeed able to claim some of the costs of running the house itself as a business expense since he uses the Orchard Room for official engagements and entertaining (“it was used,” according to the 2013-14 annual review, “for 15 receptions, seminars and briefings”). In one sense, he would appear to be doing no more than what any self-employed person with a large income would do in similar circumstances: maximising his business expenses to minimise his tax liability. But Highgrove illustrates the wider issue of how he decides the division of his spending between public and private matters - and indeed what his public duties should be. When his principal private secretary was pressed on this last point by the Public Accounts Committee, the response was suitably Delphic: “His business – if you like – is being Prince of Wales.”25
In the end, it would be left to members on the floor of the House of Commons to attempt to get to grips with royal income and expenditure.
18.SOVEREIGN GRANT OR SOVEREIGN GREED? - 2011-13
“I missed all these wonderful contributions on the Queen’s new allowance - her winter heating allowance, or whatever it is”
Dennis Skinner MP lamenting his absence from the debate on the Sovereign Grant bill
It was billed as the most radical shake up of the royal finances in two hundred and fifty years yet there was almost no mention of reforming the two royal duchies when the Chancellor of the Exchequer told parliament his detailed plans to replace the Civil List with the Sovereign Grant. The debate on the third reading took place on a hot July afternoon in 2011 and the chamber was thinly attended as demob-happy MPs prepared to depart for the summer recess. Only a few hours were allocated for the debate on a draft bill that had only recently been shown to MPs and some older hands suspected that the government was once more trying to railroad through the Commons a potentially embarrassing royal bill. "We are rushing through today a fundamental change", objected the Labour backbencher Denis MacShane who, as it would later emerge in his conviction for fraud and false accounting, was not unaccustomed to financial légerdemain. “We are proposing in two hours, if that, to change what has been in place for more than two hundred years."1
As Chancellor of the Exchequer in David Cameron's deficit-cutting government, George Osborne might have been expected to wield the axe to the royal finances or at least demand the strictest of belt-tightening in palace expenditure. Earlier in his political career as a fresh-faced MP on the Public Accounts Committee he had gained a reputation for demanding value for money in all matters of public expenditure. But as the scion of an Anglo-Irish aristocratic family, he might have harboured some atavistic sympathy for another ancient family struggling with modern day costs.
Sweating slightly in the heat of the summer afternoon, the Chancellor dismissed backbencher objections about the lack of debating time and pressed ahead with introducing the bill. The reason for the need of a new Sovereign Grant, he explained, was that the old system was now unsustainable: "the system is broken and we need to fix it." It was inflexible in that funds allocated to one spending area could not be used for another. For example, money saved in travel could not be used for urgent repair work on the palaces. It was opaque in the sense that the National Audit Office was not allowed to audit the palace books. Limited scrutiny was undertaken by the Public Accounts Committee and the permanent secretary to the Treasury, but the arrangement was not very transparent. Crucially it had run out of money. The system relied on a reserve of public money that had been built up over twenty years and was now exhausted due to inflation and rising costs. In crude terms, the royal household was running on empty.
The new arrangement did away with the previous fragmented system whereby funding came from four separate sources: the Civil List from the Crown Estate profits to meet core head of state expenditure, a grant-in-aid from the Department of Transport to cover royal travel and two other grants from the Department for Culture, Media and Sport to pay for both the maintenance of the royal palaces and communication and information. In its place would be a single Sovereign Grant derived from the profits of the Crown Estate alone. It would be set at around £31m in its first year and thereafter it would be based on either the previous year’s grant or 15% of the profits of the Crown Estate, whichever was the greater.
So, when it came to the size of income there would be a guaranteed floor but no ceiling. To prevent the Royal Household getting too much money in a good year for the Crown Estate, a reserve fund was to be set up with a cap. It would hold any surpluses over expenditure and if the reserve reached more than half of expenditure, then the extra amount would be transferred to fund existing expenditure with a matching reduction in the grant. As an additional check, there would be a review every five years by the Royal Trustees (the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse) to assess whether 15% was the right proportion of profits from the Crown Estate when calculating the grant. The other safeguard to insure that the palace was not overspending or abusing the system in any way was the audit of the royal household accounts by the National Audit Office.
The new arrangement met with remarkably little criticism from the official opposition. This might be in part because there were few votes to be won in knocking the royals at a time when the Queen’s personal approval rating had never been higher. But it has now emerged that the genesis of the plan came under the previous administration. Well before the 2010 election, the Queen’s Treasurer, Sir Alan Reid, discussed with the Labour Prime Minister, Gordon Brown, and the Chancellor of the Exchequer, Alastair Darling, his idea of simplifying the myriad of funding streams into a single source. Just as happened with Harold Wilson and the Civil List review in 1970, the Labour government preferred to wait until after the election to see which way the wind was blowing rather than make a decision immediately.2
The Shadow Chancellor Ed Balls - another Treasury old-hand who would have been expected to get heavy on any royal waste - generally supported his opposite number's proposals since they aimed "to strike a fair and workable balance between the legitimate needs of the household and the interests of the taxpayer.” He thanked the Chancellor for agreeing to his amendment to reduce the frequency of the review process by the Royal Trustees from seven to five years but warned that the cash floor in the bill would mean in effect an end to the current process of efficiency savings and that the years ahead were likely to see a real term rise in palace expenditure.
What placated the Shadow Chancellor and backbench MPs was the concession by the palace to allow the National Audit Office (and by extension the Public Accounts Committee) to audit Royal Household expenditure - something that parliament had been demanding for many decades.
However, one veteran bruiser from the Public Accounts Committee was not so happy. Ian Davidson, the Labour MP for Glasgow South West, feared that the Sovereign Grant might be open to abuse in the same way as the Duchy of Cornwall: “Quite clearly, the Crown Estate could be leant on by the monarchy to make decisions on expenditure and income in the short term to affect the amount of grant that the royal family receive. The grant would then be on, as it were, a golden ratchet - a bit like EU expenditure, it would always go up, and never down.”
He was also unconvinced with the Chancellor’s arguments for linking the funding arrangement to the Crown Estate’s profits rather than the Gross Domestic Product: “If GDP went down the Queen and the monarchy would suffer the same as the rest of us, and if it went up, they would benefit in line with the rest of us.” As was pointed out later by Lord Turnbull, the former Treasury permanent secretary who was responsible for the previous funding arrangement and was not averse to much of the new arrangements, it was odd to use as a benchmark a property company whose revenue in the past t
wo decades had increased by double the rate of inflation. If the true aim was to maintain the grant in roughly real terms, then it would have made more sense to link it to some index of inflation as happened with other public funding such as the BBC licence.
The other lone voice of opposition came from another Labour member of the awkward squad – Kevan Jones, MP for Durham North. Having served as a junior minister at the Ministry of Defence in Gordon Brown’s government, he had inside knowledge of departmental profligacy and creative accountancy. His main concern was the way the reserve fund might be open to abuse:
“Will the Chancellor explain how the controls over the reserve will work? Who will take the decisions about how it is spent? It does not take a genius or a financial wizard to work out that, if we draw down the reserve, we can certainly keep up the annual income at 15%. Who will have a say over how the reserve is spent? Will the government of the day have any control over how it is spent?”
Putting his ministerial background to good use, he also asked some embarrassing questions about departmental cross-subsidising of the royal finances. The Ministry of Defence, he pointed out, provided vital military support to the Royal Household in terms of staff which comes out of their budget rather than the palace’s. It had also been reported that under pressure from the Prince of Wales the MoD had increased their subsidy to the cost of the royal flight. He also revealed in an earlier debate on 30 June 2011 that the MoD rented certain properties from the Royal Household, including the Chief of the Defence Staff’s apartments in Kensington Palace, which cost the MoD £108,000 a year:
“Unless we know the full amount of money that is being paid to the Royal Household by other Departments…how can we determine, first, that those efficiencies are real and this is not just about moving money across and, secondly, that 15% is the right level?”
Royal Legacy: How the royal family have made, spent and passed on their wealth Page 32