A further landmark announcement was made by Tony Blair when he confirmed in July that the Civil List – the money derived from parliament for the Queen’s official expenses – will be frozen at £7.9m a year until 2011.
The Civil List is established on a 10-year basis. ‘Parliament considers it more commensurate to do it every 10 years,’ explains Sir Michael Peat, Buckingham Palace’s group finance director and first ever accountant to fill the role of Keeper of the Privy Purse.
Negotiations over the Civil List were restored to the 10-year term in 1990 to avoid the annual bargaining process believed to undermine the Crown’s standing. The 10-year term had been discontinued in the mid-1970s.
‘The Civil List meets the royal household’s immediate expenses, accounting for 20% of the total cost of our monarchy,’ says Sir Michael.
The royal household has two main sources of income: the privy purse, which is the Queen’s private income from the Duchy of Lancaster, and the Civil List.
Over the last decade the royals have become somewhat more accountable to their subjects. The British public may be the Crown’s subject, but in turn they are also the Queen’s paymasters, and public opinion has become more pronounced.
The Royal Family, which has an unbroken thread of 1,000 years, has increasingly realised the need to step wholeheartedly into the 21st century. The Queen’s advisers understand the Royal Family’s longevity depends on its ability to adapt to change and prove the contribution it makes to Great Britain is worth its monetary weight.
In 1993, the Queen took over payment for several members of the Royal Family. What would have normally been spent on the Duke of York, Princess Margaret, the Kents and the Gloucesters has reduced the public’s bill by around #800,000 per year.
The year 1992 probably sticks in most people’s minds as the year of both the Windsor Castle fire and the Queen’s groundbreaking announcement to pay income tax. The palace, however, maintains that the decision to pay income tax was made before the devastating fire.
Only the Queen Mother and the Duke of Edinburgh continue to receive yearly parliamentary allowances totalling #640,000 and #359,000 respectively.
The Queen Mother is reportedly the most expensive member to maintain given her penchant for all things expensive, especially Krug champagne, her favourite tipple. Although the need for more transparency in the royal finances began in 1987 when former Lord Chamberlain Lord Airlie enlisted KPMG to take a look at the royal finances, it was 1993 that marked a clear turning point in how the finances were managed. The last time an outsider, a Treasury official, had the chance to take a peek at the royal books was in the 1920s.
Following the fire at Windsor, the Royal Collection Trust was set up to help lighten the burden of government expenditure. The trust, although owned by the public, is the Queen’s private collection ranging from furniture and paintings to books and seen by around six million people each year.
Two years prior, Buckingham Palace took over control of the properties referred to as the ‘occupied royal palaces’ or the ‘estate’, which comprises some 350 individual properties. Their maintenance and upkeep is one of the expenses met by the government in return for the monarch’s surrender of the crown’s hereditary revenues.
Under the 1952 Civil List Act, the Queen surrenders the annual income from the Crown Estate, which amounts to £130m a year, in return for the Civil List and for parliament meeting other head of state expenditure.
On 4 July when Tony Blair unveiled a breakdown of the royal household’s spending in the Commons he praised the ‘very substantial efficiencies’ made by the Royal Family. Nevertheless, some still fervently disagree.
‘This is a pretty big winter heating allowance. What is so special about this family that they qualify for #7.9m instead of 75p?,’ left-wing Labour MP Dennis Skinner said, referring to the increase in a pensioner’s allowance.
It is understood the household’s aim of reining in costs was to divert public attention away from how much the royals cost to what they actually do.
Despite the continued existence of many critics, it is now not as easy to accuse the Royals of a lack of financial transparency or disclosure given the publication of three annual reports covering most of the monarchy’s activities.
It was the appointment of Sir Michael as Keeper of the Privy Purse in 1996 that ensured a tight rein over the royal finances, despite moves over the last decade to keep pace with change – much to the dislike of the palace’s old guard. Sir Michael, previously at KPMG, has worked at Buckingham Palace since 1993.
‘Without compromising the level of the standard of service the household has made savings of 55% in real terms over the last decade,’ he says.
‘I call it my “more for less approach”,’ he adds.
The #35m worth of savings were made due to royal household efficiency savings of #8m, #15m as a result of inflation being lower than predicted and interest of #12m earned for the taxpayer on the accrued surplus. Under Sir Michael, the tenets of private sector management were injected into the Privy Purse. In order to apply his private sector knowledge, it was vital to assume responsibilities over the household’s finances.
In 1997 the palace took over responsibility for royal travel expenditure with the aim of ensuring cost reductions and enhancing value for money.
The move also paved the way for a detailed annual report to be published giving one organisation responsibility for the royal travel expenditure.
Indeed, the financial accounts give a detailed account of every journey taken.
Sir Michael’s ‘more for less approach’ involved cutting the royal yacht, Britannia, out of the financial equation. ‘It contributed to a third of savings,’ he said. Britannia, once used to wine and dine visiting dignitaries, now resides in the port of Leith.
Sir Michael is renowned in internal circles for cutting costs to the chagrin of many traditionalists. Besides Britannia, he disposed of two RAF 32 Squadron helicopters and leased a new Kilorsky S76 to be operated directly by the household. The royal train costs were also more than halved.
Official travel by car for the Queen is paid for from the Civil List and for the Queen Mother and the Duke of Edinburgh from their parliamentary annuities.
Sir Michael says the royal finances are now run in much the same way as any company. However, he emphasises the issue of dealing in public money rather than shareholder investments. ‘The level of scrutiny is much greater and it is not a question of profit, but of accounting for value,’ Sir Michael tells Accountancy Age.
Indeed, nowadays, the royal finances are probably the most scrutinised accounts in the country. ‘We are subject to three forms of audit. Working for the Queen, people expect things to be done very well. We’ve been publishing performance indicators for a number of years now,’ he says.
There are the external auditors, KPMG, internal auditors and the National Audit Office, which examines the accounts.
So, besides getting rid of the expense of the royal yacht, how exactly did Sir Michael and his finance team cut back?
‘Attention to detail. Negotiate well and efficiently with suppliers to get the best value for money. All the small savings added up to make the bigger savings. All in all it was better financial management,’ explains Sir Michael.
But, he says there were no draconian cutbacks causing standards to be compromised. He puts it all down to the basic disciplines of accountancy. The second main source of income, the Privy Purse whose revenues are mostly derived from the Duchy of Lancaster, amounts to #5.7m, which is subject to tax. The estate revenues totalling #1.3m annually are those that go to parliament in exchange for the Civil List. The Duchy of Lancaster is an estate of 50,000 acres of land, spreading as far afield as Yorkshire, Cheshire and South Wales and has provided a private income for monarchs since 1399. The palace is significantly protective of these revenues maintaining to this day that this income is private. Sir Michael says the Queen must have her own income if she wants to ‘buy Christmas presents’, for example.
Nevertheless, some of the money is used by the Queen for official expenditure and to pay for those members of the royal family no longer on the Civil List payroll.
In addition to the various revenues, the Queen has a portfolio of investments, of which Sir Michael says heady guestimates of #100m, are ‘widely exaggerated’.
Suggestions of half that amount may be closer to the mark.
As for the Queen’s involvement in the day-to-day management of the household’s finances, Sir Michael says: ‘I report to the Queen. She takes a close interest.’
Her close scrutiny is reportedly renowned at Buckingham palace. It is understood that the Queen in her 49th year of reign can often be found switching off unneeded lights around the palace.
BREAKDOWN OF EXPENSES
Electricity supplies to the royal palaces – #326,000 year
Telephone bill – #755,000
100th birthday telegrams – discontinued last year in favour of personalised cards – #52,000
Gardens – #411,000
Porters and cleaners a year – approximately #500,000
Source: The Royal Grant In Aid Annual Report 1999-00
THE REAL COST OF ROYAL TRAVEL
Under Sir Michael Peat, the grant-in-aid reduced by 58% in real terms during the three years since the Royal Household assumed responsibility for royal travel expenditure.