Statement by the Chancellor of the Exchequer, Rt Hon George Osborne MP, opening the Debate on Resolutions for the Sovereign Grant Bill

Statement by the Chancellor of the Exchequer.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon George Osborne

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Mr Speaker, I beg to move the motion.

The Queen’s Gracious Message yesterday invites Parliament to consider the provision of support to Her Majesty, her successors and other members of the Royal Household.

This reflects a simple fact - the current Civil List arrangements are no longer sustainable.

They are inflexible, they are less than transparent and, critically, they 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.

This will take the form of a new Sovereign Grant, which balances the public interest that our Queen is 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 this motion, the Bill to establish the Sovereign Grant will be published later today.

The House will have an opportunity for a longer and more detailed debate in two weeks’ time, when it has its 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 conscious when taking office of the fact that I am the 19th Chancellor of the Exchequer to serve under her reign.

In the 59th year since her accession to the throne and in 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 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 conducts official business on behalf of the Government, leading 2,700 engagements and 150 official overseas visits last year.

Over 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, and is widely admired around the world.

But, as has been recognised for centuries, the official duties of the Monarch do cost money.

That is why in the Eighteenth Century an historic arrangement was reached between the Government and the Monarch.

Until then the Monarchy was undistinguishable 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 ten years at a time.

But this system too had its weaknesses.

Because inflation was hard to forecast accurately over a ten year period, and the Civil List ended up being too generous at the beginning of the period and too meagre at the end.

And 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 and instead went into a reserve, which by 2001 had grown to over £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 their official duties.

That means that over the past three years the Royal Household has on average spent around £35 million a year.

Let me set out how this spending breaks down for 2009-10 the most recent year for which there is outturn data:

  • £7.9 million from the Civil List
  • £6.5 million from the reserve
  • £3.9 million for travel
  • £0.4 million 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 down on costs and improve the effectiveness of their spending.

Indeed, total spending has come down from £45.8 million in 1991-92 to an expected £35.7 million in 2010-11.

That is a real terms cut of over 50% in 20 years. No other Government Department can claim to have achieved 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.

And I would like 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.

Yet, despite such impressive efficiencies, there are problems with the current system.

It’s very inflexible.

For example, money saved in travel cannot be used to undertake an urgent repair of a property.

It’s opaque - and the National Audit Office access to official spending.

And critically for today’s discussion, it was clear by April 2010 that the Royal Household’s reserve, which had provided a key component of their annual income, was running out.

The previous Government took the decision, which I completely understand, to leave it to the incoming Government to fix this situation.

Mr Speaker, 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 this with fairness and accountability for the taxpayer.

It’s designed around three principles.

First, it provides the Monarchy with sustainable long-term financing free from annual political interference - by which I mean their budget can be set for the long-term, and automatically up-rated without a political argument.

Second, 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 ensure greater accountability and transparency, and we establish proper checks and balances to prevent the sums provided becoming too excessive.

Those are the three principles underpinning our approach.

Let me now turn to some of the detail - recognising that in a fortnight’s time, once people had a chance to study the legislation, we will have a longer debate at second reading.

First, we need a funding mechanism that prevents the Sovereign from coming to Parliament each year for resources and provides funding broadly in line with growth in the economy.

There is such a mechanism at hand, through the historic connection with the Crown Estate.

From 2013-14, I am proposing that the Royal Household receive 15% of the profits made by the Crown Estate two years prior.

As the House will know, the Crown Estate is a large commercial property portfolio comprising £6.7 billion of assets.

And 15% of profits is estimated to provide a Sovereign Grant worth around £34 million in 2013-14, broadly in line with the latest data on grant and reserve spending for 2009-10 of £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.

There will be a cash floor to protect the Monarch from cash cuts, but basically they 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 means that by 2014-15, the last year of this Parliament, the Monarch will receive around £35 million.

In cash terms that is broadly in line with what they spent in recent years

In real terms it is an around 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 accession.

This 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 am proposing that the new legislation should be a permanent arrangement that outlives the Sovereign.

It will only require an Order in Council to extend the Sovereign Grant to a new Monarch, rather than a whole new piece of legislation.

I hope that Members will agree that this is a sensible arrangement.

We are also using this Bill to remove a historic anomaly about the Duchy of Cornwall.

The revenues of the Duchy are used to fund the Prince of Wales in his official duties - but are only available to him because he is the Duke of Cornwall.

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, then they can’t be the Duke of Cornwall, and this means they wouldn’t get the revenues of the Duchy.

We propose to correct this anomaly, by making it clear that in future the Duchy of Cornwall revenues will in effect go to the heir whether or not they are Duke of Cornwall.

There will be a provision in the Bill to deal with the situation where 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 then be reimbursed to the Exchequer by the Queen.

Yesterday I received a letter from the Keeper of the Privy Purse regarding 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.

Mr Speaker, 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.

This is very inflexible.

It means that the Royal Household can’t 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 under-spent public money will go into a reserve.

This is a sensible arrangement which will allow the Royal Household to provide for contingencies and invest in one-off capital projects.

However, unlike previous years we are going to have a maximum target on that reserve, so that it never rises above around 50% of the annual grant.

That will mean, for example, that if the annual grant is £34 million the reserve will be limited to £17 million.

This is very much lower than the £37 million that was accumulated in the reserve ten years ago.

Mr Speaker, 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 we get excellent value for money from our Monarchy.

It amounts to 51 pence per year per person in the UK.
However, 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, like travel or palace maintenance, but not full audits as with other government departments.

This Bill will change that.

From now on, the NAO will have full access and will become the statutory auditor of all the Royal Household’s official business and the sovereign reserve.

They will also be able to audit the assets used by the Royal Household in carrying out their official business.

The NAO 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 this 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.

This is a big and historic extension of parliamentary scrutiny, and I would like to thank Her Majesty for opening up the books.

We are also proposing 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.

This percentage will be reviewed every seven years to determine whether it remains appropriate.

The review will be conducted by the three Royal Trustees - the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse.

Each 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 by affirmative resolution.

The Royal Trustees will also act to make sure 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 the Sovereign Grant is spent on the official duties it is supplied to be spent on.

These arrangements also deal with the potential situation, which some people predict, where there is an increase in Crown Estate profits from offshore wind activity.

Currently those revenues are running at around £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.

We will not allow revenues from off-shore wind to lead to a disproportionate rise in revenues to the Royal Household.

And we will shortly be setting out proposals, unconnected to this legislation, to make sure coastal communities can benefit from the development of the Crown Estate marine activities.

Mr Speaker, let me conclude.

Today we recognise the value of the Monarchy and 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 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 our proposals will receive all-party support.

And I commend the motion to the House.

Published 30 June 2011