The Queen’s House

by Edna Healey

  Added to the criticisms of the royal lifestyle were a concern with the cost of maintaining the monarchy and its palaces and doubts about the efficiency of their financial organization.

  When Lord Cobbold succeeded as Lord Chamberlain in 1963, as well as reorganizing the Household he played a key role in the reform of Palace finances.

  The Queen’s finances and the cost of running Buckingham Palace have been much discussed – and much misunderstood. The Palace is the headquarters of the Head of State and as such is paid for partly by the Treasury through the Civil List, but as the private home of The Queen and the Duke of Edinburgh, it is paid for by The Queen out of that part of the royal income known as ‘the Privy Purse’.

  The whole question of The Queen’s finances was brought into the limelight in 1969. It had been customary to settle the amount of the Civil List allowance – which included a provision for annuities for certain members of the royal family, including the monarch’s children and royal widows – at the beginning of a new reign and to keep it unchanged for that reign. But in 1969 Prince Philip breezily remarked in the course of an interview in America that the royal family was going rapidly into the red and that he would have to sell his polo ponies and their yacht. His point was that though prices and the wages of their employees had increased considerably in the years since the beginning of the reign, the annuities paid to the royal family had remained static.

  Prince Philip’s remarks caused a stir. It was not the moment for the Labour government, which was at that time trying to bring in prices and incomes legislation, to recommend increases in the royal income. The Labour MP R. H. Crossman said, ‘The Queen pays no estate or death duties … and this has made her by far the richest person in the country.’19 There were, however, those on the Labour benches, including Emanuel Shinwell, who said: ‘If we want a monarchy we have to pay them properly.’20 Wilson himself, devoted to The Queen and always chivalrous in her interest, managed to defuse the issue by promising an All-Party Select Committee of Enquiry into royal finances, which was set up in June 1971. This was the first thorough investigation of royal finances.

  In his preliminary statement to the Select Committee, Lord Cobbold said that

  contrary to the impression which seems generally to have been given by the Press, The Queen is not asking for a pay rise. On the contrary Her Majesty has offered to forego Class I of the Civil List in future, and thus accept a reduction of £60,000 a year from the income to which her Privy Purse is entitled under present legislation. The remainder of the Civil List includes no element of ‘pay to The Queen’. Expenditure under Classes II and III represents what we have termed ‘Head of State Expenditure’. If it is the wish of Parliament that the Monarchy should be maintained at its present standards, increase of expenditure is inevitably dictated by the decrease in the purchasing power of the currency.21

  As for the annuities paid to members of the royal family, they, said Lord Cobbold, ‘can only be regarded to a small extent as “personal pay”. The bulk of the Annuities goes to meet the necessary expenses of Members of the Royal Family under heads similar to Classes II and III, in carrying out their public duties.’

  He explained that The Queen’s possessions, public and private, can be divided into four categories:

  1. The Royal Palaces, Crown Jewels, and Royal Collections, which are inalienable. 2. The Privy Purse, which is fed from Civil List Class I and Duchy of Lancaster revenues, which is at Her Majesty’s disposal and controlled by the Keeper of the Privy Purse on her behalf. 3. The Sandringham and Balmoral Estates, which are Her Majesty’s personal inheritance, and are similarly controlled on her behalf by the Keeper of the Privy Purse. 4. Her Majesty’s other private possessions.22

  In the first category,

  The Royal Collection is regarded as covering all pictures and works of art purchased or acquired by all Sovereigns up to the death of Queen Victoria, and also certain property acquired by Sovereigns and their Consorts since the death of Queen Victoria, which was specially allocated to the Royal Collection. This, of course, covers the vast bulk of the contents of the Royal Palaces. The Royal Collection is regarded as passing in right of the Crown from Sovereign to Sovereign and, therefore, inalienable by the Occupant of the Throne. There are two very minor variations. Items of minor importance, surplus to the Collection, are occasionally sold to raise funds for the purchase of other items of special interest to the Collection. Further, certain very minor works and duplicate items once owned privately by Queen Victoria are occasionally disposed of as presents to the Commonwealth or for similar purposes.23

  The Royal Philatelic Collection, the Royal Library and the Crown Jewels, Lord Cobbold continued, are all inalienable. The Queen does not regard them as being at her free personal disposal.

  Except for personal current expenditure the funds derived from the Privy Purse and from the Duchy of Lancaster have been allocated over the past twenty years

  (a) to create a pension fund for past and present employees of The Queen and her family not otherwise provided for.

  (b)for the upkeep and improvement of The Queen’s Sandringham and Balmoral Estates, on which, for obvious reasons, there had been scarcely any capital expenditure in the war and early post-war years.

  (c)for assistance to Members of the Royal Family in meeting their official expenses.

  (d)for charitable subscriptions and donations.

  (e)for welfare and amenity purposes for the Staff of the Royal Household.

  (f)to create a contingency reserve. This reserve has been heavily drained to meet the Civil List deficit in the most recent period pending the present review.24

  There was enough money in that reserve to cover the Civil List deficit to the end of 1971 but not for the whole of 1972. This explains Prince Philip’s remark that they were going into the red.

  Speaking on behalf of The Queen, Lord Cobbold declared that

  Her Majesty has been much concerned by the astronomical figures which have been bandied about in some quarters suggesting that the value of these funds may now run into fifty to a hundred million pounds or more. She feels that these ideas can only arise from confusion about the status of the Royal Collections, which are in no sense at her private disposal. She wishes me to assure the Committee that these suggestions are wildly exaggerated. Her Majesty also wishes me to state that the income from these private funds has been used in some part to assist in meeting the expenses of other Members of the Royal Family; owing to the progress of inflation, they have, in many cases, heavily outrun the Annuities granted by Parliament to cover such expenses at the beginning of the Reign.25

  Questions from the Committee to Lord Cobbold ranged from the cost of the Chapel Royal and Choir School, to medals of the Royal Victorian Order, and why the Royal Gardens had suddenly gone into surplus. The reply to the latter was that they were making a small profit from the sale of mushrooms, flowers, etc.

  When the organization of the Palace came under scrutiny, Lord Cobbold told the Committee of the work of the Treasury team set up at the instigation of Prince Philip in 1962. Lord Cobbold further explained that when he came to the Palace in 1963

  there was something still of a feeling, though not as much as there had been earlier, that it was just an honour to serve The Queen, which indeed it still is, but people need not bother quite so much about what they were paid. That has disappeared a lot during the Reign, but it has been one of my preoccupations to get rid of that and see that from top to bottom people are properly paid, and I hope that I can say we have succeeded in that, with great help from the Chancellor’s Department and the Civil Service Department. We have reviewed the whole of the salaries and wages from top to bottom in the last few years.26

  The Committee were surprised to learn that there were 208 unpaid appointments at the Palace. Lord Cobbold explained that some, like the Swan Keeper, were ‘purely hereditary’, and that there were extra gentlemen ushers and extra equerries who helped out, for example, at garden parties and in
vestitures, who were people who had served The Queen in other capacities. Some were called upon only four or five times a year. ‘They are happy to do it and they regard it as a service to The Queen, the Crown and indeed to the State.’ In reply to Joel Barnett MP, Cobbold explained that the expenses of those members of the royal family who did not receive annuities were helped ‘to some extent from her own private money’.27

  It was stated that the Palace is not only the official headquarters of the state; it is also a home, and therefore it is sometimes difficult to distinguish between public and private expenditure. When in doubt, it is The Queen who usually foots the bill. Harold Wilson, helpful as ever, pointed out that The Queen often paid for her official uniforms.

  She was, as Joel Barnett succinctly observed, in fact, subsidizing the taxpayer. So she had also done this by ‘paying expenses’ of other members of the royal family.

  What clearly emerged from the Committee’s investigation was that the Palace was looking for about £450,000 a year at the end of 1972 to deal with the deficit. The Committee was able to recommend to the House an increase in the Civil List, subject to a review in ten years’ time. There should be a fixed sum payable annually, with allowances for inflation. At the end of the ten-year period a report would be prepared by a Committee of Royal Trustees, composed of the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse, to oversee expenditure on the Civil List.

  However, only three years later, when a Labour government was in power, the Royal Trustees reported to the Treasury, expressing concern at the steep rises in inflation and increases in wages and prices. Therefore on 12 February 1975 Wilson laid before the House a request for a rise in the Civil List from £980,000 to £1,400,000. This caused a fierce outcry from the Labour left, led by the ever-watchful William Hamilton, who produced powerful ammunition in his book The Queen and I. The fact that The Queen did not pay income tax concerned MPs of all political persuasions. Michael Stewart warned of ‘a steady and growing concern about the royal immunity from tax’.28 In spite of the argument of Denis Healey, the Chancellor of the Exchequer, that ‘the real issue was whether humbly paid men and women on the royal staff should get the rate for the job’,29 89 Labour MPs voted against the increase and 50 deliberately abstained. Nevertheless the Bill was passed.

  More crucial changes in the funding and administration of Buckingham Palace were made as a result of a thorough investigation at the end of the 1980s, under the direction of the Lord Chamberlain, Lord Airlie, and Michael Peat.

  The Earl of Airlie, was a banker: he had been chairman of Schroders. At a time when the cost of running the royal palaces was much in question, a practical knowledge of finance was of more importance than the diplomatic and military skills of his predecessors. Steeped in tradition though he is – his grandmother was Mabell Countess of Airlie, Lady of the Bedchamber to Queen Mary – Lord Airlie has been the prime mover in the recent reorganization of the administration and financing of the Palaces.

  After six months’ observing, he began a thorough survey of the royal Household and called in the accountants Peat Marwick McLintock, who were already acting as auditors at the Palace, to do a comprehensive survey. Michael Peat was brought in, with the new title of Director of Finance and Property Services, before becoming Keeper of the Privy Purse in 1996.

  Michael Peat, at forty-six, brought an acute intelligence, financial experience and considerable energy. With European business qualifications, he had worked with his father’s firm as auditors at the Palace and was therefore already aware of the situation. With the co-operation of Lord Airlie and the consent of The Queen, Peat transformed the Palace administration.

  In July 1990 the Conservative government, at that time led by Margaret Thatcher, established a ten-year agreement by which a figure was set, based on the average for the previous decade. The report of the Royal Trustees considered this ‘would not only be in keeping with the dignity of the Crown, but in tune with modern financial practice’.30 Instead of an annual argument about The Queen’s finances, her Civil List income was increased by more than 50 per cent. This assumed a 71/2 per cent inflation rate so that the surplus at the beginning of the ten-year period would cover the later shortfall. The total set was an annual £7.9 million from 1 January 1991. This meant that for the future the Palace would be in control of its own expenditure. This settlement received support from the Opposition. In fact, since future inflation and price rises had been overestimated the result turned out to the advantage of the Palace. Any surplus goes to the Treasury, and is not retained by the royal Household.

  The second fundamental change was in the administration of the royal Household. Until 1991 the Department of National Heritage provided ‘Grant-in-Aid’ for the upkeep of Buckingham Palace and the other occupied Palaces. These services were managed by the Property Services Agency for the Department of National Heritage.

  After 1991, the Department of National Heritage still remained answerable to Parliament for the funding of Property Services, but the Lord Chamberlain is now responsible for ‘all aspects of the management and administration of the Queen’s Household’. The Permanent Secretary of the Department of National Heritage is responsible for the accounting of ‘the prudent and economical administration of the funds provided by Grant-in-Aid’.31

  In the Memorandum of Understanding of 1 April 1991 the royal Household’s objectives were set out.

  a)to maintain the Palaces as buildings of State to a standard consistent with the Household’s operational requirements and with the royal architectural and historic status of the buildings.

  b)to that end to organise and obtain works and other property services in the most economic and effective way to achieve financial and other performance targets.32

  As a result of this reorganization, and with the management of the Palace now the responsibility of the Lord Chamberlain and his colleagues, considerable savings have been made – not without ‘blood and tears’ – by energy-saving measures and reducing staff numbers. A small group of professional staff in the royal Household under Michael Peat took responsibility for the maintenance of services.

  The question of the payment of Parliamentary annuities to the royal family was also settled in 1992. When The Queen came to the throne, the Civil List Act made provision for the expenditure incurred by The Queen’s cousins, the Dukes of Gloucester and Kent, and Princess Alexandra, when on official duties for The Queen. However, from 1976 The Queen had herself reimbursed the Treasury for these expenses.

  From 1991, Parliamentary annuities, including those reimbursed by The Queen, were fixed, like The Queen’s Civil List, for a period of ten years. Queen Elizabeth The Queen Mother had been granted £643,000; the Duke of Edinburgh, £359,000; the Duke of York, £249,000; Prince Edward, £96,000; the Princess Royal, £228,000; Princess Margaret, £219,000; and Princess Alice, widow of the Duke of Gloucester, £87,000. The expenses of other members of the royal family were to be met by The Queen. The Prince of Wales has his own income from the Duchy of Cornwall.

  In February 1992, Lord Airlie told a press conference, ‘The Queen asked me to look at the feasibility of paying tax.’33 By November 1992 the study was almost completed and preparations were being made to announce a plan for The Queen’s taxation, when a fire broke out at Windsor Castle on 20 November. Public sympathy for The Queen, seen on television in headscarf and mackintosh among the ruins, waned when Peter Brooke, the Heritage Secretary, offered the consoling assurance that the government would foot the bill for repairs. The suggestion that the taxpayer should pay a bill that would run into millions raised again the question of The Queen’s personal wealth. The announcement of The Queen’s offer to pay tax, planned for January 1993, was now brought forward.

  On 26 November 1992, Prime Minister John Major announced that The Queen and the Prince of Wales were to pay income tax on their private incomes from 1993. The £900,000 Civil List payments to five members of the royal family would be ended. Michael Pea
t explained in a television interview that

  The Queen would return to the Treasury the Civil List money voted to all members of her family except herself, her mother and her husband. Adjustments would also be made to the contributions made by the Prince of Wales to the Treasury from the profits of the Duchy of Cornwall. Tax would not be paid on public assets or the royal train, royal yacht or the Queen’s flight. Money paid by the Queen to her mother or husband would be tax deductible. No inheritance tax would be paid on bequests to the next Sovereign but tax would be paid on private assets: bequests to the Queen’s other children would not be exempt from inheritance tax.34

  The Windsor fire caused one of the most significant changes in the history of Buckingham Palace. In 1993, to help pay for the rebuilding of Windsor Castle, the State Rooms of Buckingham Palace were, for the first time, opened to the paying public for two months each summer.

  The settlement of 1992 helped to defuse the arguments over Palace finances. Subsequently, a number of economies have been introduced. The grace and favour residences occupied by pensioners are being gradually phased out. From April 1994 new staff and staff transferring into residential accommodation have been charged 16.7 per cent of their salaries in rent. As a result of the measures introduced in 1991–2 the royal Household hopes to reduce the ‘annual amount of the Grant-in-Aid to £15 million by the end of the decade. If this is achieved more than £70 million will have been saved since … the Royal Household assumed responsibility for property services in the occupied Palaces on 1st April 1991.’35

  Despite these changes there are still wildly misleading estimates published about The Queen’s private income. As the Keeper of the Privy Purse writes,

  The Queen’s personal income, derived from her personal investment portfolio, is used to meet her private expenditure. The Queen’s private funds, as for any other individual, remain a private matter. However the Lord Chamberlain said in 1993 that estimates of £100 million and upwards were ‘grossly overstated’.36