Duchy of Cornwall Bill [HL]

Lord Adonis Excerpts

2nd reading (Hansard): House of Lords
Friday 26th October 2018 Lords Chamber

[Lord Berkeley (Lab)]

My Lords, I declare an interest: I live with my wife in the Isles of Scilly; she has lived there for over 40 years. I have been following royal transport costs for many years and make no secret of my opinion that some of the Royal Family’s transport costs have been justified and are seen to be frugal, but some are excessive, including a charter flight to Saudi Arabia for a funeral.

The point of the Duchy of Cornwall is clearly to provide an income for the heir to the throne. We can dispute how much is needed and whether the confused and non-transparent operation of the Duchy is justified to achieve this. As the Duchy has been telling us for many years, it is a private estate and private estates often provide income for their owners in a transparent and non-discriminatory manner. I note that this Bill requires the consent of both the Queen and the Duke of Cornwall. I question why the Duke of Cornwall: is there not a conflict of interest? I do not think we will get that far, but it is an interesting question to debate.

I think this is the fourth time I have put down this or a similar Bill. This is simpler than previous ones and seeks to concentrate on what I think are the most important issues to be addressed. I argue that because the Duchy now firmly says that it is in the private sector, it should be treated as such. I am also very grateful to Dr John Kirkhope, an eminent scholar and notary public who has spent years examining the Duchy issues and helped with the Bill and what I am going to say.

The trouble is, the Duchy sometimes chooses to be treated as a private estate and sometimes as a Crown body, which receives privileges and is largely unaccountable and silent on many issues. It is wrong that the Duchy should be able to choose its own status based on what is apparently the most financially advantageous option. It should be one or the other—and it has chosen the private option. My Bill is designed to put that option into effect, making it a private estate with no special privileges. I emphasise that the Bill is not about the Duke of Cornwall per se, apart from the first clause. I should also tell the House that a year or two ago, when I previously put forward a Bill, I had a meeting with Duchy officials. We went through all the clauses in that Bill, which was very similar to the Bill today, and, at the end, I asked if they agreed with what I had said and they replied “Yes, largely”. Then when I asked if they would say so in public they said, “No”. I wrote to them again before today asking if they would like to discuss this Bill and I did not get a reply. So there we are. We ought to compare what the Duchy of Cornwall does with what the Duchy of Lancaster and the Crown estates do, which are much more transparent and open.

Clause 1 is on the succession to the title “Duke of Cornwall”. We have debated this in the past and I could go on about it for a long time. The key thing is that it should be open to women as well as men; I am not quite sure whether they would be called the Duchess of Cornwall, but it does not matter that much. The point is that they should have the same privileges and rights as the Duke of Cornwall. After all, the Duke of Lancaster is always the sovereign, regardless of gender, so why should that not apply to the Duke of Cornwall? We can debate that, and I am sure that when the Minister replies he will go back to the royal charter of 1842, although it probably goes back to long before that. But I will not get into that now, because there are many important things that I need to put to the House.

Probably the most important issue is Crown immunity, which is addressed in Clause 2. To illustrate the lack of transparency, a friend of mine who has been trying to buy his house in the Isles of Scilly under the right to buy, and other colleagues, put in 64 freedom of information requests about the Duchy and the Crown immunity issue. I will give only one example. In August 2011, they asked the Ministry of Justice:

“Please provide any papers which explain the basis on which the Duchy of Cornwall enjoys Crown Immunity”.


At least the ministry answered it, but its answer was: “We do not hold any material which you request”. So how can they do it?

There are other examples in various Acts of Parliament which need to be considered. One is the Marine and Coastal Access Act 2009. It states that the provisions of the relevant part of the Act “bind the Crown”, which includes the Duchy of Cornwall, and that:

“No contravention by the Crown of any provision of this Part is to make the Crown criminally liable”.


The Data Protection Act gives the same information, and Section 14 of the Nuclear Explosions (Prohibition and Inspections) Act 1998, the Transport Act 2000, the Licensing Act 2003, the Planning and Compulsory Purchase Act 2004—I have nearly finished—and the Planning Act 2008 all contain the same exemptions.

Most people would find it odd that if the Duchy of Cornwall caused a nuclear explosion—which is highly unlikely—it would not be subject to criminal sanctions. Surely, it is a pretty remarkable state of affairs that an estate that asserts it is private is given exemptions from criminal sanctions under numerous Acts of Parliament, should it act in breach. I can go on about Crown immunity but I will not, because I would like to move on to tax.

We have debated in your Lordships’ House many times the issue of tax and the Duchy of Cornwall. The Duchy pays tax on a voluntary basis, but no other estate that I know of in this country does so. I do not know how many other noble Lords pay tax voluntarily—we would probably all like to—but the fact remains that the Duchy should be assessed and treated in the same way as any other estate or private individual.

Clause 4 addresses exemptions under the Leasehold Reform Act. As noble Lords will know, there is a consultation out on this at the moment. I have a friend who has been trying for many years to buy a property in St Mary’s on the Isles of Scilly, and he has completely failed. He has responded to the consultation and I hope he will be successful. This goes back to the issue that the Duchy of Cornwall is not bound by the Leasehold Reform Act because it has an exemption. You can understand the need for an exemption for London’s Royal Parks and other national parks and buildings, but some not very special houses on the Isles of Scilly—I am sure my friend would agree with that assessment—have this exemption and my friend is not allowed to buy his house. Whatever we think of the Leasehold Reform Act, the fact remains that everybody should be treated the same, but in this case they are not.

I think the Duchy will like Clause 5, as it would enable it to purchase land in the UK outside England. Why is there a restriction? I am told that it is a hangover from Victorian times, because of very different land and inheritance laws in Scotland at the time. Apparently, Balmoral was purchased in the name of Prince Albert because, despite the fact that Victoria was Queen, as a female she could not own land in Scotland. I am sure that many noble Lords will know more about this than I do, but that is what I am told. After the death of Prince Albert, the Crown Private Estates Act 1873 was passed to rectify the situation.

Clause 6, on the Stannaries Act, is a bit of a Cornish situation; not many people know about Cornwall’s stannaries. It is time to remove this Act because under it, the Duchy can appoint anyone to be a Duchy solicitor or barrister; they do not have to be legally qualified. That seems unnecessary. The Law Commission recommended that this provision be repealed, and I am told that the Crown lawyers, Farrer & Co, objected. They would, wouldn’t they? They would probably lose revenue if the cases ever came forward. That is another classic conflict of interest, but it is time to move that one on. The same applies to the Solicitors Act 1974.

The issue of the Treasury Solicitor is a serious one. The Duchy is a private estate. Which other private estate gets free legal advice of unlimited quantity—and, presumably, quite good quality—from the Government’s lawyers? I know several people who have had disputes with the Duchy. There was a case concerning the Helford river, which I think we have discussed before. A friend of mine won his case against the Duchy, probably because the Duchy’s representative said, “We believe we are above the law”, or something like that; but of course, when the Treasury Solicitor got involved he lost on appeal, which is no great surprise.

[Lord Adonis (Lab)]

My noble friend referred earlier to the tax position of the Duchy of Cornwall and the fact that it pays tax on a voluntary basis. My understanding is that the revenue surplus of the Duchy of Cornwall has increased by 50% in the last seven years and that its property asset base has increased from £630 million in 2011 to £940 million in 2018, which is a huge increase. Does my noble friend have the figures for what the increase in the voluntary tax paid by the Duchy of Cornwall has been in that seven years? I cannot find them. Has there been a 50% increase in the tax paid by the Duchy of Cornwall to the Treasury over that period? If my noble friend does not have the figures, it may be that the Minister, who is in full command of all the figures to do with the Duchy of Cornwall, could tell us.

[Lord Berkeley]

I am most grateful to my noble friend for that question. He will not be surprised that I do not have the answer to it. Of course, we are not talking only about income tax—it is about capital gains tax and everything else as well. We can do an FoI on it, but I suspect that it will take a long time, and that is part of the lack of transparency. I very much doubt that similar estates are subject to the same exemptions, so it is a very good question.

I think it is time that the apparent right to Crown immunity for this private estate, with the privileges that it seems to enjoy without any clear basis, came to an end, and my noble friend’s question is very germane to that. The Duchy asserts, as it is entitled to do, that it is a private estate, yet to avoid a suite of laws and because it would not be seemly for the Duchy to be seen in court, it has been granted taxation privileges and property rights and—a procedure that continues today, I think to the detriment of other taxpayers and also to some of the residents—has no parliamentary approval or judicial oversight. It is also free from criminal sanctions should it break the law—something that I think is just crazy.

Let us be quite clear: this is not the Duke but the Duchy of Cornwall. The Duke of Cornwall is completely different. Various Acts of Parliament relating to tax and many other matters in relation to this private estate have been “suspended”, as it has been called. I recall that the last time I managed to question the Chief Whip, he kindly said—I think it was before the Third Reading of a Bill—that the Queen and the Duke of Cornwall had kindly put their interests at the disposal of Parliament. When I asked why, it took about six weeks to get an answer. That was not the Chief Whip’s fault; the answer probably came from the palace, but it was completely meaningless. Therefore, we really need to bring all this into the 20th century and put the situation on to a clear and transparent footing.

Noble Lords ask me: what next? That is a fair question because I am sure that this Bill will not find its way on to the statute book in this Parliament. However, the Duke of Cornwall could decide to do much of what it seeks to do on a voluntary basis. I hope that he will read today’s debate and perhaps consider what he and his successors can do in the short term to put this matter on to a more transparent footing. I beg to move.

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[Lord Adonis]

My Lords, because of the great respect and loyalty that we have for Her Majesty the Queen and the Prince of Wales, we pay little attention to the royal finances and royal income, but I think it is time that we started to do so because the situation is very unsatisfactory and is becoming more so. I wish to make a few observations on my noble friend’s Bill, which, although it clearly will not pass, performs a great public service in bringing the issue of the Duchy of Cornwall and the wider royal finances to the attention of the House and giving us the opportunity to debate them.

The first point to make is that the position of both the Duchy of Cornwall and the Duchy of Lancaster is highly anomalous. The deal done in 1760, when George III came to the Throne, was that the Crown would surrender the Crown Estate, from which of course prior to that the monarchy had enjoyed the full income, in return for a settlement with Parliament on the royal finances. That situation continued until 2011 and the passing of the Sovereign Grant Act, to which I shall return in a moment, as it is crucial to understanding what has gone wrong with the royal finances in the last seven years. However, an equivalent deal was not done in respect of the Duchy of Cornwall and the Duchy of Lancaster, which clearly should have happened. There is no reason why a set of historical estates, which just happen to be a function of long history, should rest in the Crown, totally unrelated to the income requirements of the monarchy, and of course the heir to the Throne is part of the monarchy.

My noble friend referred to a lack of transparency. I agree that that is an issue, but a big issue also is the fact that there seems to be no relationship whatever between the income enjoyed by the Duke of Cornwall and the requirements of the office of the Duke of Cornwall for the income.

The noble Lord, Lord Wakeham, said that I was confusing capital and revenue. I was not. My analysis of the accounts of the Duchy of Cornwall found that both the capital and the revenue have increased substantially in recent years. The figures I gave in my intervention are striking. The capital base of the Duchy of Cornwall has increased from £630 million to £940 million in just the last seven years, and the revenue enjoyed by the Duke of Cornwall has increased by a similar proportion. My questions for the Minister are these. First, how does he justify this? Secondly, what contribution is being made in voluntary tax—and in my view it should not be voluntary; I see no reason at all why the Duchy of Cornwall should pay tax on a different basis from any other estate in the country—and what has happened to that tax revenue?

The other substantial income of the monarchy is the sovereign grant, which used to be called the Civil List. That situation appears to have become seriously out of sorts in the last seven years. In 2011, a peculiar deal was done between George Osborne, who was then Chancellor of the Exchequer, and the Keeper of the Privy Purse to end the previous system of the Civil List, which as I said went back to the 18th century, and to replace it instead with a formula whereby the monarchy would be funded by 15% of the net revenues from the Crown Estate. There was no basis for this formula, because of course the Crown Estate was no longer the Crown Estate in anything other than name—it is part of the ordinary income of the Treasury. It was done for effect more than anything, I think, to try to establish some connection and to put the royal finances substantially beyond the process of annual negotiation with the Treasury and with Parliament. These was no other basis at all for doing it. Indeed, when the Sovereign Grant Bill was debated in your Lordships’ House on 3 October 2011, the noble Lord, Lord Turnbull, who is deeply familiar with the royal finances, said that,

“the link with the Crown Estate … is pretty artificial as there is no relationship between the net income of the Crown Estate and the funding of the monarchy, and there has not been since 1760, when the hereditary revenues of the Crown Estate were first surrendered”.—[Official Report, 3/10/11; cols. 966-67.]

Leaving aside the formula, it is its impact that ought to be of concern to the House. When setting out the formula in 2011, George Osborne said that the effect would be to keep the income of the monarchy roughly stable. On 14 July 2011, he said in the House of Commons that,

“the important thing, is that the amount of money going from the public purse to the royal family will be broadly the same … We can have a debate about the mechanism”—

that is, the new sovereign grant mechanism—

“but the effect will be pretty much to continue through this Parliament with the sums that they were getting during the last one”.—[Official Report, Commons, 14/7/11; cols. 541-42.]

He went on to say that, because of efficiencies, there would be a 9% net reduction over the course of the last Parliament. That did not happen. On the contrary, the reverse happened: the baseline income that the Royal Family received in respect of the Civil List, which was £30 million in 2011, went up to £36 million in 2013, £39 million in 2014, £40 million in 2015, £42.8 million in 2016, and last year it was £76 million. The £42.8 million figure was a 38% increase in a settlement that was presented to Parliament as a steady-state settlement in a period which, I need hardly remind the House, was one of great austerity in the funding of other parts of the public service.

Far from improving, the situation got worse last year, because of the suddenly announced decision—which was not debated in your Lordships’ House at all—whereby the formula for the allocation of the Crown Estate to the funding of the monarchy was, overnight, increased from 15% to 25% to accommodate the refurbishment costs of Buckingham Palace. I could make a whole speech on the cost estimates and the refurbishment of Buckingham Palace, which have been subject to no parliamentary oversight whatever. The initial projection made to Parliament in a Select Committee appearance by the Keeper of the Privy Purse was that the refurbishment would cost about £150 million. The last figure on which the calculation of the increase from 15% to 25% took place was £368 million—a more than doubling in the cost. We think that the renewal and refurbishment—or whatever it is called—of the Palace of Westminster is out of control, but proportionately, what is going on in Buckingham Palace is far worse. But because we do not debate these issues and there is no relevant parliamentary committee or any oversight process whatever in respect of the royal finances, it is entirely shielded from public view.

The 25% figure is entirely arbitrary—it looks to me as if it was done on the back of an envelope, because it is a round figure. That 25% has already taken the allocation from the Crown Estate to the Royal Family from £30 million in 2011 to £76 million in 2018. The projection is that it could go up by £10 million, £20 million or £30 million in the next five to 10 years. It depends entirely on what happens to London property prices, which is where the bulk of the Crown Estate is. Although Brexit is having some effect on London property prices, noble Lords will be aware that they are pretty resilient.

The arrangement that was made in 2011 has become a one-way ratchet for a significant and extra-parliamentary increase in the revenues of the Crown. As if that is not enough, the arrangement under which this formula is calculated provides that there can be no diminution in the income going to the Crown. If that happens, under the Sovereign Grant Act the Exchequer will simply make up the difference. It provides also that the formula that set the 15% and then revised it to 25% is set by a committee of commissioners of the Crown: the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse. They are three very worthy people, and I admire them all, but no one can pretend that this is an open and accountable process subject to parliamentary control.

The Minister is always immensely well briefed when he appears before the House, and I hope he will be able to comment on what I have said, and provide us with the justification for the 15%, the 25% and what is happening to the tax paid in respect of the Duke of Cornwall.

My final comment is simply to quote the noble Lord, Lord Luce, who enjoys great confidence in the House as a former Lord Chamberlain, and who has performed great service to the state while in government and to the Royal Family. When the Sovereign Grant Bill was presented to the House on 3 October 2011, he said that,

“the monarchy must set an example of restraint and prudence in expenditure, especially in tough times”.—[Official Report, 3/10/11; col. 971.]

I completely agree. However, the exact reverse has happened and the situation is very unsatisfactory.

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[Lord Young of Cookham (Con)]

My Lords, I am grateful to the noble Lord, Lord Berkeley, for raising once again this important issue. He has brought these measures forward in a number of guises and is a true crusader for reform in this area. I thank all noble Lords for their valuable contributions to the debate, in particular my noble friend Lord Wakeham for putting the issue in a broader historical context and for explaining the basis of the current settlement. He also stressed the importance, a point underlined by the noble Baroness, Lady Hayter, of trying to seek a consensus before we make changes in this area.

Every day we say a prayer for the Prince of Wales, prospering him with all happiness. I am sure that nothing which has been said in this debate will go against the daily injunction we are given by the right reverend Prelates. The Duchy of Cornwall is an important institution. Since it was established in the 14th century, the Duchy’s main purpose has been to provide an income that is independent of the monarch for the heir apparent. The land, property and other assets of the Duchy and the proceeds of any disposal of assets are subject to the terms of a number of Acts, including the Duchy of Cornwall Management Acts 1863 to 1982, the combined effect of which is to place the Duchy’s assets in trust for the benefit of the present and future Dukes of Cornwall and to govern the use of the assets.

The current Prince of Wales chooses to use a substantial proportion of his income from the Duchy to meet the cost of his public and charitable work. The Duchy funds the public and private lives of five other adult members of the Royal Family—the Duchess of Cornwall, the Duke and Duchess of Cambridge and the Duke and Duchess of Sussex.

Turning to Clause 1, the noble Lord, Lord Berkeley, and others have raised the matter of the inheritance of the Duchy of Cornwall. The issue of gender equality is a priority for this Government and quite rightly the matter has been raised again today. Noble Lords are correct to say that at present the title can pass only to the eldest son and heir of the monarch. Thus, when the Queen was heir presumptive to the throne, she did not hold the title of Duke of Cornwall and the Duchy lands were vested in her father, the sovereign. The mode of descent specified by the Charter of 1337 is unusual and differs from that which commonly occurs in respect of hereditary titles. The monarch’s eldest son is automatically the Duke of Cornwall immediately he becomes the heir apparent. However, the manner of descent of the Duchy would preclude a grandson who is heir apparent from gaining the title of the Duke of Cornwall if he were heir to the sovereign because he is not the son of the monarch. With the Duchy of Cornwall we have a very unusual piece of English history that does not conform to the standard rules of descent for hereditary titles.

If we look back over recent years, there have been long stretches when there has been no eldest son to be the Duke of Cornwall, in which case the Duchy estate vests in the sovereign who oversees the affairs of the estate in lieu of a Duke. Viewed from today’s perspective, as opposed to that of the 14th century, I can understand why noble Lords have raised concerns about the descent of the Duchy of Cornwall, and indeed the Government have some sympathy with those concerns against the background of the changes made to the Succession to the Crown Act 2013 and other moves to increase equality. However, parliamentary time is currently scarce and noble Lords will agree that there are other more pressing priorities. Furthermore, given that currently there are three male heirs to the sovereign—Prince Charles, Prince William and Prince George—I do not believe that the time is right to dedicate parliamentary time to this matter when it is badly needed elsewhere. Indeed, the issue raised by the noble Baroness may not arise until the next century.

The noble Lord, Lord Marks, raised the more general issue of the succession of hereditary titles, on which I am sure a number of noble Lords have different views. However, they are not the subject of this particular legislation. Perhaps I may reassure the House that a female heir apparent will not find herself at a financial disadvantage because the Sovereign Grant Act 2011 broadly ensures that financial provision equal to the income from the Duchy is made for the heir apparent.

I turn now to the amendments on enfranchisement which are of particular interest to many in this House and to myself as a former housing Minister. The Leasehold Reform Act 1967 gives leaseholders the right to purchase a property from the landlord if certain circumstances are met. The Leasehold Reform, Housing and Urban Development Act 1993, which I put on the statute book, gives the tenants of flats in a building the right to collectively acquire the freehold of that building, again if certain conditions are met. The Act also provides the right for a tenant to extend the lease if certain conditions are met. Both Acts exempt the Duchy of Cornwall and other Crown lands from these provisions. This is because the capital raised from the Duchy cannot be distributed and is reinvested in the Duchy; the Duke of Cornwall receives funds only from the surplus. The general exemptions are important to protect land and property associated with the Crown and to ensure that the Duchy continues to perform its role for future Dukes.

However, I shall turn to what I think is the crucial point: Crown authorities have voluntarily committed, most recently in 2001, to abide by the same terms as private landlords in most circumstances. The Duchy has more than 600 residences, around 20% of which would be subject to these Acts had the Duchy not been exempted. The number of tenancies which the Duchy has sold or granted a lease extension to tenants under the terms of the enfranchisement Acts is around 120. There are some exceptions, as the noble Lord, Lord Berkeley, implied, including the historic Royal parks and palaces, property or areas which have a historic association with the Crown or where there are security considerations.

The Bill would represent a significant change to the legal status of the Duchy of Cornwall. There is a presumption that legislation does not bind Crown lands, including the Duchy of Cornwall. Removing Crown immunity for the Duchy of Cornwall could be problematic in the future. As the Duchy of Cornwall vests in the sovereign when there is no Duke of Cornwall, the sovereign has a residual personal interest in matters affecting the property of the Duchy of Cornwall. When vested in the sovereign, the Duchy of Cornwall would have a different legal status from other lands belonging to the Crown.

I turn to the tax status, again raised by a number of noble Lords. The Bill proposes that the Duchy of Cornwall will be liable to income tax and capital gains tax. Let me start by confirming the current arrangements. The Duchy enjoys Crown exemption and is not in any case a corporation within the charge to corporation tax. The Duke of Cornwall is not entitled to the proceeds or profits from the sales of the Duchy’s capital assets, which are retained in the Duchy to provide income for the Duke and future beneficiaries.

The Prince is liable to pay income tax and capital gains tax on any income and capital gains he may receive from other non-Duchy sources. In line with the Memorandum of Understanding on royal taxation, he pays income tax voluntarily on the surplus of the Duchy of Cornwall after deducting official expenditure, applying normal income tax rules and at the 45% rate. In his annual review, the Prince of Wales stated that he paid £4.85 million in the 2017-18 financial year, although this figure includes VAT, income tax and capital gains tax from non-Duchy sources. If employer’s national insurance contributions and council tax are included, the total tax paid increases to £5.3 million. Of course, the expenditure varies from year to year, as does the value of the surplus.

The tax status of the Duchy of Cornwall reflects that of the sovereign, who is also not legally liable to pay income tax, capital gains tax or inheritance tax because the relevant enactments do not apply to the Crown. The Queen also pays income tax and capital gains tax on a voluntary basis in line with the Memorandum of Understanding. Moreover, the unique nature of the Duchy of Cornwall means that, in order to produce a workable income tax and capital gains tax regime, deeming the Duchy as a settlement would not be sufficient. Further provisions would be necessary to ensure that the legislation would work effectively without unintended consequences.

In his speech, the noble Lord, Lord Adonis, focused mainly on the Sovereign Grant Act rather than the Bill before us. I will write to him in answer to some of the issues that he raised. In summing up, I again pay tribute to the noble Lord, Lord Berkeley, for pursuing this important matter.

[Lord Adonis]

What has happened to the tax paid by the Duchy of Cornwall in recent years? The Minister gave last year’s figure. Can he say how that figure has changed?

[Lord Young of Cookham]

I have the figures for only the past three years in my brief. I think that the noble Lord’s queries went further back than that, so I will write to him. I would just say that the Labour Party voted for the Sovereign Grant Act.