The Diamond Queen

by Andrew Marr

  Airlie suggested that the Queen call in outside consultants. Peat Marwick Mitchell, perhaps the best known of the troubleshooters, were chosen to do ‘a complete review, top to bottom, with total latitude’. For an institution so used to running on private, traditional lines, this was a big step for the Palace. At the time almost every big corporation seemed to be spending more and more on consultants; but for the Queen to summon the bean-counters and efficiency experts was something else. Naturally, the man chosen was not quite an ordinary bean-counter. Running the team was Sir Michael Peat, product of Eton and Oxford, whose great-grandfather had founded the firm (now KPMG). Bald, lean, fiercely intelligent and iconoclastic, he had royal connections too. Peats were the auditors of the Queen’s private funds, the Privy Purse, and as a younger man Sir Michael had gone in with his father to do this. Like Airlie, he would switch from the world of finance to work full time at the Palace, later moving from the Queen’s team to become Prince Charles’s private secretary and thus part of the campaign for the reversion of the Crown Estate money. He and Airlie now unleashed something like a private Thatcherite revolution inside Buckingham Palace. If in 2012 the monarchy seems in good shape that is not all the Queen’s achievement: the Queen’s fixers are part of the tale.

  With a team of four Peat began work during the summer of 1986. He had finished the job by the end of the year. His 1,380-page report contained around 188 detailed suggestions, from cutting footmen and administrators to cheaper ways of entertaining. ‘Like a knife through butter’ was how one Palace source described Peat’s effect on the royal finances, cancelling bloated catering and transport contracts, bringing in modern management and better, brighter people, slashing overhead costs and taking back many of the functions then being run by the government. Portion control arrived for banquet catering; many petty corruptions were ended. What was described as ‘the country house set’ who had been running the Royal Household by and large disappeared.

  They had been, said one observer, nice and charming people in their way, with their shoes polished to a blinding degree by valets. They were good company at excellent dinners and always ready to join the royal family for shooting and fishing at Balmoral or Sandringham. But they had allowed the state to take over more and more of the job of running the monarchy, resulting in a lack of independence, energy and enterprise at Buckingham Palace, a form of ‘genteel ossification’. In the late 1970s the Labour prime minister Jim Callaghan had wanted to go further and fully nationalize the working of monarchy under a special Department for Royal Affairs. Now Airlie and Peat were determined to go in the opposite direction and cut the Royal Household free from direct Treasury control. To a degree that has never been fully understood, they privatized the Queen.

  They started by negotiating a new deal with the Treasury about the painful Civil List problem for the previous two decades, and some years later, in 1990, Margaret Thatcher’s government in its final months finally agreed a deal. Sir Andrew Turnbull, a Treasury civil servant seconded to Downing Street, who later became cabinet secretary, chaired a group with Airlie and Peat; the Treasury’s Sir Hayden Phillips; and the Inland Revenue. One senior official, who had been involved in earlier rounds of negotiation, insists: ‘The attitude of the Treasury was not that we wanted to make great savings in the Civil List because frankly it was chicken-feed. This was an establishment manoeuvre to protect the Queen. We wanted to have a Civil List review as rarely as possible.’

  The Queen agreed to strip the minor Royals from the Civil List, and to pay for them herself. From now on, only she, Prince Philip and the Queen Mother would receive money directly from the Treasury. The rest would be funded from her private income, mainly the Duchy of Lancaster money. Some other Palace expenses, such as staff pensions and security costs, were prised out of the account and pushed into general government spending. The effect, however, was to give Airlie and Peat their chance to take over most royal management themselves: ‘We wanted to be more masters of our own destiny.’

  Annual deals had meant it was impossible to plan ahead. Both sides, Whitehall and the Palace, decided that a ten-year deal would be the obvious answer. The major problem was inflation. Inflation had been rising sharply for four years and was running at around 9.5 per cent by 1990. The Treasury was very anxious about suggesting that it would not be under control again soon; but equally edgy about setting any future figure which the press would then discuss. Eventually Airlie suggested the deal should be based on the average of the previous decade, 7.5 per cent. The Treasury agreed. The annual money was then doubled but frozen. This would be too generous in the first few years but would then be eroded by inflation. ‘She got £7.9 million a year, which we knew was more than she needed in year one, but by the end of year ten, having built in inflation at 7.5 per cent, would be about right,’ says one of the civil servants involved. Turnbull and Sir Peter Middleton, the then Treasury boss, had cleared their lines politically by telling the Labour leader Neil Kinnock ahead of time. ‘Well, you can’t do fairer than that,’ he had replied.

  In fact, because inflation fell, the deal was to begin with more generous than intended. The Queen was able to build up a cash surplus of £35 million by 2000. Any surplus, it had been agreed, would be rolled over for the next decade. And indeed, after the ten fat years, came the ten lean. By the time David Cameron’s coalition government looked again at the royal books in 2010, the Queen had received an unchanged annual payment not for ten years, but for twenty. Behind the scenes courtiers were quick to ask what other parts of the state had been able to live within a cash-frozen budget for two decades. But much more important was that for twenty years, years covering the worst crisis for the monarchy since the abdication, the Queen was spared the annual fulmination about her expenditure from the press and republican politicians. Had the reformers not been at work before, the year of disasters could have led to a downward spiral in the Queen’s story – not the end of the British monarchy, but its radical diminishing. Palace nervousness about public opinion is often overdone – but neither can support for the institution be taken quite for granted.

  At the same time as all this was going on Airlie and Peat took back control over most of what Whitehall had been administering. In 1989–90 Airlie managed to wrest back the day-to-day running of the major palaces from Whitehall, when the Department of Environment’s Property Services Agency was abolished. The Lord Chamberlain now took responsibility for Buckingham Palace, St James’s Palace, Clarence House and Windsor Castle. For the Royal Household, it was a big gamble: ‘We had to collect a team almost overnight. We didn’t have anybody – we may have had the odd plumber, but we had to start afresh. Behind the headlines about marriage breakdowns and royal soap-opera, it was a considerable achievement: the Royal Household, with the Queen as chairman, took back in-house the business of monarchy, from ministers and from Whitehall. “The Firm” was run once more like a private company. And at its apex was the monarch itself.

  ‘The Queen’s very businesslike. You send a memorandum and it’s back the next day, or certainly within twenty-four hours. She’s intuitive and has good judgement; and whenever I go to see her, I have to remember that she has more experience than anybody else and that she knows more than I do. At the end of the discussion, I always felt better. She is very calm, cool and collected about these things,’ says one of those involved. ‘More for less’ was the slogan. The cost of running the Royal Household was slashed, while the staff numbers were radically increased. Peat multiplied the size of the royal machine but divided the cost, squeezing what he used to call ‘the inefficiency reserve’ – the dripping, bloated costs of mismanagement by government officialdom. Meanwhile, Airlie had made big changes to the structure of the Queen’s little state-within-the-state. The Lord Chamberlain became a chief executive, or mini-prime minister, overseeing a monthly committee of the five heads of the different departments. His role is hard to express (the Palace’s official job description includes fourteen separate duties) but the job
is meant to be part-time, a mix of strategic manager, adviser to the Queen, a bridge between her and the Prince of Wales, and with a brief ‘to get the best out of all employees by helping to create a pleasant but professional atmosphere’. Of the qualities needed according to the official job description the most important may be simply ‘to have the confidence of the Queen’ and ‘a wise and balanced approach’.

  The job, which is not advertised on the Guardian public sector appointments website, tends to go to a male aristocrat near retirement age. Lord Chamberlains are vague about who exactly recommended them, but they will always have met the Queen before and will be interviewed by her. She told one, ‘If I am going to do my job, I have to have very good people working for me; and it’s got to be a nice atmosphere because if you work in that atmosphere, people want to do their best for you.’ If this makes it sound genteel, then it is. But if it makes it sound gentle, then it often is not. Until 1968 the Lord Chamberlain, assisted by former naval officers of steely views, was responsible for censoring plays. More recently Lord Chamberlains have had to bring the Queen some of the worst news and most difficult decisions about her family, including plain speaking about her errant children, which has not been easy.

  The Queen had asked Airlie to look at the other great conundrum, whether she should pay income tax. He was close to a deal when the great fire at Windsor broke out and had planned to explain his proposals to her in the quiet of Sandringham the following January. Now that she had agreed to a fixed cash deal for the Civil List and to pay for the younger Royals from her own pocket, Airlie and Peat had to try to come up with a plan which would ensure that the Queen did not run out of cash through huge new tax bills. They had been at it with the Treasury team and Inland Revenue since February. ‘Then came the [Windsor] fire – bang! And that weekend’s press was very upsetting – “The Queen’s so rich! Why can’t she pay?”’ The prime minister, John Major, said he would be making a statement on Monday in the Commons. The Queen, suffering from a bad cold, still coming to terms with the fire and with her ‘annus horribilis’ speech at London’s Guildhall just ahead, had to go through her tax plans in a rush – like so many of her subjects. She was, apparently, highly pragmatic and simply told her officials to get on with it.

  Airlie had insisted, to start with, that she should not pay inheritance tax for ‘sovereign to sovereign bequests’ so that the Crown Estate could pass essentially unaltered from reign to reign. The alternative, the Palace argued, was that the glamour and authority of the monarchy would shrink with each accession until it was a meagre sliver of an institution. The bad luck of a quick couple of successions would mean Balmoral going, and Sandringham too. Soon Britain would be left with ‘a pauper monarchy’ unable to demonstrate any independence from the government of the day at all – which, as we shall see, the new theorists of monarchy thought would be a disaster. The Treasury agreed, though even today the decision rankles. The Queen agreed to pay income tax and capital gains tax on her Duchy of Lancaster money and on her private investments. Yet mandarins fretted that, in reality, the deal was still overly generous. Airlie and Peat’s new deal would be followed by the announcement in April 1993 that parts of Buckingham Palace and the Windsor grounds would be opened to the public to help pay for the costs of the Windsor Castle repairs. The Royal Collection of paintings, drawings and other artworks, one of the world’s great collections, was turned into a department of its own, properly managed, and for the first time, well displayed for the paying public and competently catalogued.

  The cost of the monarchy is not a serious economic issue. It is a chemical indicator of popularity. The old ways of somewhat complacent senior courtiers, excessive numbers of footmen living pretty well, unchallenged grace-and-favour apartments and a general vagueness about priceless possessions such as the Royal Collection were not in themselves the problem. But as MPs discovered in the expenses scandal of 2009, what seem comparatively small issues can come close to destroying the reputation of entire institutions.

  So what, in the final count, does the monarchy cost the British? In her 1959 book How the Queen Reigns the journalist Dorothy Laird (a relative of the author) calculated that the government grant to the Queen ‘amounts to between twopence and twopence halfpenny per person in the United Kingdom each year. That is the cost of one cigarette.’2 Laird adopted a narrow view of the cost of the monarchy. Cigarettes have also been taxed more heavily as time passed. But on a roughly similar basis, taking into account grants, the Civil List and annuities, what the government describes as its total support for the Queen as head of state (£32.8 million in 2011) and a packet of twenty cigarettes at £6.30, the sum now works out at the cost of two cigarettes. The Queen also now pays a large amount of money on her private wealth in tax, which she did not do in 1959. Looking at head-count, the lavishness of entertaining and Royal Household salaries relative to other London-based wages, the Queen today certainly does not operate more extravagantly than before; indeed, less so. The more important point about the cigarette comparison – today we might say less than half the cost of a cappuccino at a high street chain – is that it is very small. The 70p compares to a rough figure of £23,000 at the time of writing as each Briton’s share of the national debt.

  During 2010–11, the question of how the British monarchy is financed was radically revised and, once again, the Queen was closely involved. Before the 2010 election, her Treasurer and grandly titled Keeper of the Privy Purse, Sir Alan Reid, began talks with his fellow Scots, the Labour prime minister Gordon Brown and chancellor Alastair Darling. Instead of three separate payments from the government – the Civil List, grants for maintaining the palaces and the travel budget – he wanted a single system. Up to then, if the Palace spent less on travel, it could not transfer the cash to repair a leaky roof. It also had to negotiate with three separate government departments, one of which, the Culture and Sport department, was already obsessed with the Olympics. Palace officials felt they were being treated as part of its tourism remit. With an election looming the prime minister was no doubt trying to work out whether a new system of financing the Queen would win him, or lose him, votes. At any rate, Labour passed the decision on to the Tory-led coalition that won power.

  The coalition moved fast. It was the prime minister David Cameron’s office, and that of the chancellor George Osborne, which first came up with the idea of paying for the monarchy through a percentage of the Crown Estate revenues – 15 per cent – rather than a specific sum voted every ten years or so by MPs. This would help take the funding decision out of politics. But there were two obvious questions. First, would it simply lift the financing of the monarchy out of Parliament’s eye line and hide it from public scrutiny? Second, if the Crown Estates were well run (and they included potentially big new revenues from, for instance, offshore windfarms) then might not the Crown become ever richer? To resolve these, Sir Alan and the Queen agreed that their spending would in future be scrutinized each year, not by a private company, KPMG, or the Treasury but by the Public Audit Office. This means a committee of MPs, the public accounts committee, would have the right to examine the books and the Palace officials. Second, to stop the Queen or her successor doing too well out of future profits, a system of reviews and caps on money in reserve has been set up. In future it will be easier to cut the percentage than raise it. Palace figures say the Queen was clear that any recipe for future profligacy would be unwise: ‘she is very aware that she rules by consent’.

  There was, however, a brisk debate between the politicians and the Palace about the transitional arrangements. These are tough and mean that in effect the Queen is taking a 19 per cent real-terms cut in her income during 2011–13, including her Diamond Jubilee year. The chancellor George Osborne had insisted that only Britain’s overseas aid budget and the health service could be ring-fenced: the Queen had to share the belt-tightening. Again, she was directly involved herself in the decision. A couple of other financial decisions at the same time are of real sig
nificance for the monarchy’s future. First, the deal struck by the Queen can be carried over when she dies into the next reign. Second, the arrangements for the money from the Duchy of Cornwall, the £17 million or so of income going to Prince Charles, have been reorganized. The current system dates back to Henry V, of Agincourt fame. The Cornwall money goes to the sovereign’s eldest son and heir. So if an heir to the throne was female, she would not get it. The new system corrects that. It also means that if Prince Charles happens to die before his mother, this substantial sum will go to Prince William, the Duke of Cambridge, as heir, rather than to Prince Andrew, the Queen’s eldest surviving son.

  So there is a chance, at least, that the long and vexed question of paying for the British monarchy has been settled. Only a chance: any future monarchy perceived to be a spendthrift, particularly in hard times, would find politicians returning to the issue. The Queen seems unsentimental about money and has willingly made big changes – being taxed, ending the Civil List and taking more responsibility for spending. Her income from private investments is important to her – but mainly to finance her continuing fascinated involvement in horseracing.