Civil List

George Osborne Excerpts

Thursday 30th June 2011 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

I beg to move,

That—

(1) new provision be made for, or in connection with, the financial support of the Sovereign and of the heir to the throne;

(2) any sums payable in respect of provision so made should be payable out of money provided by Parliament;

(3) provision be made enabling the continuation, in the reigns of Her Majesty’s successors, of the payment of the hereditary revenues of the Crown as directed under section 1 of the Civil List Act 1952;

(4) provision be made about allowances and pensions under the Civil List Acts of 1837 and 1952;

(5) any sums payable in respect of such allowances and pensions by virtue of any provision so made should be charged on the Consolidated Fund;

(6) it is expedient to amend the law relating to the financial support of members of the Royal Household.

The Queen’s Gracious Message yesterday invited Parliament to consider the provision of support to Her Majesty, her successors and other members of the royal household. That reflects a simple fact: the current civil list arrangements are no longer sustainable. They are inflexible, less than transparent and, critically, rely on a reserve of public funds that has steadily been run down and is about to become depleted.

As I explained to Parliament last October, we have been working with the royal household to design a new funding arrangement. It will take the form of a new sovereign grant that balances the public interest in our Queen being properly funded to carry out her official duties with the legitimate interest of the taxpayer in proper accountability and value for money. If we approve the motion, the Bill to establish the sovereign grant will be published later today and the House will have an opportunity for a longer and more detailed debate in two weeks’ time, or thereabouts, on Second Reading.

We must start our discussion today by recognising the Queen’s long service and immense contribution to public life in our country. I was firmly put in my place on taking office when I was reminded that I was the 19th Chancellor of the Exchequer to serve under Her Majesty. In the 59th year since her accession to the throne and the 86th year of her life, Her Majesty still took part in 440 public engagements. Her visit to Northumberland last week reminds us of the work that she and other members of her family carry out week in, week out to celebrate the achievements of communities across Britain. The royal family also conduct official business on behalf of the Government, leading 2,700 engagements and 150 official overseas visits last year. More than 41,000 people were invited to events at one of the palaces.

The monarchy is also a powerful magnet for international tourism, worth, according to one recent estimate, some £500 million to Britain. There is little doubt that our monarchy is a source of great national pride and constitutional strength that is widely admired around the world. As has been recognised for centuries, however, the official duties of the monarch cost money. That is why in the 18th century an historic arrangement was reached between the Government and the monarch. Until then, the monarchy was indistinguishable from the state and both were funded from the income the mediaeval Crown collected from its estates, as well as duties, fines and other charges.

In 1760, George III agreed to surrender for his lifetime the full income of the Crown Estate to the Government in return for a civil list. That arrangement has been in place ever since and a clear demarcation has long been established between the private income of the royal family for their private expenditure and the publicly funded income, derived from the civil list, for the royal family’s public duties.

At the beginning of each reign, Parliament passes a new Civil List Act setting out a fixed annual amount for the whole of that reign. That was done in 1952, when Her Majesty was proclaimed Queen. By 1972, high inflation had so eroded the value of the civil list that the system had to change and this House agreed to set fixed annual amounts for 10 years at a time, but this system, too, had its weaknesses. As inflation was hard to forecast accurately over a 10-year-period, the civil list ended up being too generous at the beginning of the period and too meagre at the end. We are living with those weaknesses still.

In 1990, the annual civil list amount was set at £7.9 million. Additional support was provided to the monarch in the form of two grants in aid, one for travel and one for maintenance of the royal palaces, but inflation in the 1990s was falling faster than forecast and much of the funding was not spent. Instead, it went into a reserve, which by 2001 had grown to more than £37 million. At the beginning of the last decade, it was decided that rather than set a new civil list, the royal household should run down that reserve to fund its official duties.

That means that over the past three years, the royal household has on average spent about £35 million a year. Let me set out how the spending breaks down for 2009-10, the most recent year for which there is out-turn data. There was £7.9 million from the civil list, £6.5 million from the reserve—that was, of course, public money that had been provided earlier—£3.9 million for travel, £400,000 for communications, and £15.4 million for royal palace maintenance. It should be made clear that over recent decades the royal household has done a huge amount to cut costs and improve the effectiveness of its spending. Indeed, total spending has come down from £45.8 million in 1991 to an expected £35 million in 2010-11. That is a real-terms cut of more than 50% in 20 years. No other Government Department can claim to have achieved anything like that.

Those efficiencies have continued in recent years. For example, visitor income to the palaces has almost doubled, commercial lettings at Hampton Court and Kensington palace are up 30% and a two-year pay and recruitment freeze on the royal household has been imposed. I want to take this opportunity to thank the current Keeper of the Privy Purse, Sir Alan Reid, and his predecessors for doing such a good job.

Despite such impressive efficiencies, however, there are problems with the current system. It is very inflexible. For example, money saved in travel cannot be used to undertake an urgent repair of a property. It is opaque, as the National Audit Office’s access to official spending is limited and, although it has carried out value-for-money studies, it has no audit function. Critically for today’s discussion, it was clear by April 2010 that the royal household’s reserve, which had provided a key component of its annual income, was running out.

The previous Government took the decision, which I completely understand, to leave it to the incoming Government to fix that situation. This is how we propose to do it. We will introduce a new sovereign grant that provides appropriate resources for the Queen to do her job with dignity but balances that with fairness and accountability for the taxpayer. It is designed around three principles. First, it provides the monarchy with sustainable long-term financing free from annual political interference, by which I mean the budget can be set for the long term and automatically uprated without an annual political argument. Secondly, it provides flexibility, so that the royal household can manage its funds efficiently to deliver best value for taxpayers. The third principle is that, alongside more sustainable finances with greater flexibility, we will ensure greater accountability and transparency and establish proper checks and balances to prevent the sums provided from becoming too excessive. Those are the three principles underpinning our approach.

[Official Report, 5 July 2011, Vol. 530, c. 13-14MC.]Let me now turn to some of the detail, recognising that in a fortnight’s time or so people will have had a chance to study the legislation and we will have a longer debate on Second Reading. First, we need a funding mechanism that prevents the sovereign from coming to Parliament each year for resources, and that provides funding broadly in line with the growth of the economy. There is such a mechanism at hand, through the historical connection with the Crown Estate, so I propose that from 2013-14 the royal household receives 15% of the profits made by the Crown Estate in the two years prior. That is an average.

As the House will know, the Crown Estate is a large commercial property portfolio comprising £6.7 billion of assets, and 15% of the profits is estimated to provide a sovereign grant worth about £34 million in 2013-14—in other words, broadly in line with the latest data on grant and reserve spending for 2009-10, which was £34 million.

Each year, as the economy grows, the revenues of the Crown Estate will grow, and the monarch will eventually receive 15% of those revenues using that formula. There will be a cash floor to protect the monarch from cash cuts, but basically the monarch will do as well as the economy is doing. We will see how the Crown Estate performs, but the current estimate is that the 15% formula will mean that by 2014-15, the last full year of this Parliament, the monarch will receive about £35million. In cash terms, that is broadly in line with what it has spent in recent years; in real terms, it is about a 9% cut over the Parliament.

We are also preparing a further important improvement to the current system. Historically, extending funding arrangements to new monarchs required primary legislation within six months of their accession. That arcane process made it difficult for the royal household to plan for the future, and for each new monarch to achieve a smooth transition at the beginning of their reign when so much else needed to be done. So I propose that the new legislation should be a permanent arrangement that outlives the sovereign. It will require only an Order in Council, rather than a whole new piece of legislation, to extend the sovereign grant to a new monarch, and I hope that Members agree that this is a sensible arrangement.

We will also use the Bill to remove an historical anomaly about the Duchy of Cornwall. The revenues of the duchy are used to fund the Prince of Wales in his official duties, but they are available to him only because he is the Duke of Cornwall, and only the eldest son of the monarch can be the Duke of Cornwall. So if the heir to the throne is female or, indeed, a second son or a grandson, they cannot be the Duke of Cornwall, which means that they would not get the revenues of the duchy.

We propose to correct that anomaly by making it clear that in future Duchy of Cornwall revenues will in effect go to the heir, whether or not they are the Duke of Cornwall. There will also be a provision in the Bill to deal with the situation in which the heir is not yet an adult.

We will also bring to an end another anomaly by which certain members of the royal family receive statutory payments from the Exchequer only for the money to be reimbursed to the Exchequer by the Queen. Yesterday, I received a letter from the Keeper of the Privy Purse on this matter, copies of which will be made available in the Library after my speech. The new sovereign grant will replace all statutory payments and annuities to other members of the royal family, with the exception of the Duke of Edinburgh.

The second principle behind our proposals is flexibility. As I have said, under current arrangements, the Queen receives three different blocks of money: a travel grant from the Department for Transport; a royal palaces and communications grant from the Department for Culture, Media and Sport; and the civil list from the Treasury. That is very inflexible. It means that the royal household cannot set its own priorities and flexibly manage its resources in the course of each year, as any modern organisation would want to do.

I propose abolishing the three separate blocks and merging them into a single grant from the Treasury. As has been the case for many decades, any underspent public money will go into a reserve. This is a sensible arrangement that will allow the royal household to provide for contingencies and to invest in one-off capital projects.

Unlike previous years, however, we are going to have a maximum target on that reserve, so that it never rises above about 50% of the annual grant. This means, for example, that if the annual grant is £34 million, the reserve will be limited to £17 million, which is very much lower than the £37 million that was accumulated in the reserve 10 years ago.

The third principle of our approach is an incredibly important one: accountability to Parliament for the spending of public money, and value for money for the taxpayer. I think that we get excellent value for money from our monarchy. It amounts to 51p per year per person in the United Kingdom, but it is right and proper that Parliament should exercise oversight.

For many years, the National Audit Office and the Public Accounts Committee have been allowed to conduct value-for-money studies in some areas of royal business, such as travel or palace maintenance, but not to conduct full audits as they do with other Departments. The Bill proposes to change that. From now on, the NAO will have full access and become the statutory auditor of all the royal household’s official business and of the sovereign reserve. It will also be able to audit the assets used by the royal household in carrying out its official business. The National Audit Office will not become the financial auditor of the Queen’s private business, including the Duchies of Lancaster and Cornwall, which remain private funds.

To ensure accountability to Parliament, the sovereign grant accounts will be laid before the House. The Public Accounts Committee will also be able to conduct hearings on the royal finances, with the royal household itself providing evidence at such hearings. That is a big and historic extension of parliamentary scrutiny, and I should like to thank Her Majesty for opening up the books.

We also propose checks and balances on the size of the sovereign grant and the reserve. As I said, the sovereign grant will be set at 15% of Crown Estate revenues, and that percentage will be reviewed every seven years to determine whether it remains appropriate. The review will be conducted by the three current royal trustees, the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse, and every seven years we will come to Parliament with the proposed review and a recommendation on what it should be.

There cannot be an increase without agreement from Parliament through the affirmative procedure. The royal trustees will also act to make sure that the reserve remains within its 50% cap by reducing the annual grant as required, and of course the Treasury has a responsibility each year for ensuring that the sovereign grant is spent on the official duties that it is supplied to be spent on.

Those arrangements also deal with the potential situation, which some people predict, of an increase in Crown Estate profits from offshore wind activity. Currently, those revenues are running at about £2.5 million per year, but some forecast that they could increase substantially in the 2020s. The 15% formula will be reviewed before that may come about, and we will not allow revenues from offshore wind to lead to a disproportionate rise in revenues to the royal household. We will shortly also set out proposals, unconnected to this legislation, to make sure coastal communities can benefit from the development of the Crown Estate’s marine activities.

Today, we recognise the value of the monarchy and we put its finances on a sustainable long-term footing. I have put forward the principles behind our proposed new sovereign grant, and we will debate those in detail next month. Our aim is to ensure that the sovereign can carry out her official duties effectively and with dignity, while ensuring accountability to Parliament and value for money to the taxpayer. I hope that our proposals receive all-party support, and I commend the motion to the House.

--- Later in debate ---

[Ed Balls]

The hon. Gentleman raises an important question. It is good that Parliament has an opportunity to scrutinise the proposals in the coming weeks or months. We are in an unusual situation. This debate is not a statement, so it is inappropriate for me to ask questions of the Chancellor today and expect him to respond. The debate is also on a Bill that we have not yet seen, which is obviously awkward. I am in a stronger position to ask detailed questions than everybody else, because I knew some of the content of the proposals in advance, but I do not know all the detail.

Today we are setting out questions and issues on which the Government might want to provide more detail between now and the debate on Second Reading. We will certainly expect more detail and debate then. I am sure that in reaching that deal over past months, the Chancellor and members of the royal household scrutinised the kind of issue that the hon. Gentleman raises. However, we need to find out the detail of that scrutiny, what analysis was looked at before that agreement was reached, and the impact of the proposals on a number of things. I mentioned security and the uprating formula, and the hon. Gentleman asks the very important question of whether the measures will enhance the Crown Estate or deter it from seeking to make new investments. I do not know the answer to that, but it is a good issue for debate.

[Mr George Osborne]

The right hon. Gentleman is right: this is not a statement. It is a rather archaic procedure, but if it is any consolation, it is a lot less archaic than it was in the early 1970s—through discussions with the Chair, we managed to reduce some of that procedure. I am unable to respond to the points that he makes, but I shall use this intervention to say that I thank him for the support in principle that he has given to the measure. He has asked some good questions, to which I hope to respond on Second Reading, and other hon. Members will raise other issues. I was not able to publish the Bill until this resolution has been passed by the House. I appreciate the right hon. Gentleman’s approach. The debate on Second Reading will be an opportunity for hon. Members to go into the detail of the Bill after they have studied it.

[Ed Balls]

I was in no way criticising the approach that has been taken. I was simply noting the rather odd situation that we are in: I am able to say some things that, potentially, nobody else fully understands because they have not had the briefing from the Chancellor that I had, but I totally understand the Chancellor’s position.