House of Commons - Public Accounts

Select Committee on Public Accounts Eighth Report

EIGHTH REPORT

The Committee of Public Accounts has agreed to the following Report:—

MAINTAINING THE ROYAL PALACES

INTRODUCTION AND SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS

1. Management responsibility for the upkeep of the Occupied Royal Palaces[1] has rested with the Royal Household since 1991. Expenditure on property maintenance, furnishing and equipment, fuel and utility bills, telecommunication costs at some properties, fire precautions, non-domestic rates and certain staff costs, which in 1999-2000 totalled £15 million, is funded by a grant-in-aid from the Department for Culture, Media and Sport (the Department). The grant-in-aid also includes an allowance for furnishings, decoration and works to be used at the discretion of the Sovereign.[2]

2. On the basis of a report by the Comptroller and Auditor General,[3] and in the light of earlier work by this Committee and its predecessors,[4] we examined the Department and the Royal Household about the management of property maintenance, the use of residential accommodation, and the use of, and accountability for, visitor income.

3. The report by the Comptroller and Auditor General was the first under new arrangements that provide for the National Audit Office to have direct access to the records of the Royal Household in relation to the grant-in-aid for the upkeep of the Royal Palaces.[5]

4. Our main conclusions and recommendations are as follows.

Since the Royal Household took over the management of property services in 1991, the property services grant-in-aid provided by the Department has reduced from £29 million to £15 million in real terms, with a proportionally greater reduction in the amount required to fund maintenance expenditure. The true reduction in expenditure is, however, less than these figures suggest because some costs, currently over £2.5 million a year, have been met from visitor income at Windsor Castle and rents from residential and office accommodation in the palaces. We acknowledge this achievement.

At Windsor Castle income from visitors is collected by the Royal Collection Trust and, with the Royal Household's agreement, some of it is used to meet costs that would otherwise be met from the grant-in-aid. At Buckingham Palace all of the receipts from admission charges introduced to fund the fire restoration at Windsor Castle are now retained by the Royal Collection Trust to fund the maintenance of the Royal Collection. The Royal Collection Trust, however, is not accountable to Parliament for the use made of this income. As the income is no longer required for the fire restoration work, consideration should be given to applying a proportion of the receipts at Buckingham Palace to meeting costs that would otherwise be borne by the grant-in-aid, as in the case of Windsor Castle.

Inconsistencies in entitlement to, and charges for, the use of residential accommodation by employees and pensioners are set to continue for some time because of longstanding agreements. While some progress has been made in letting accommodation at the Occupied Royal Palaces outside the security cordon at commercial rents, there remains scope to let more such properties as they become available. The Royal Household should explore whether there is any margin to achieve this more quickly by reallocating existing tenants to properties behind the security cordon.

5. In more detail, our conclusions and recommendations are as follows.

On the management of property maintenance

(i) The Royal Household inherited a maintenance backlog of £11.4 million when they took over the management of property services in 1991. Since then the maintenance backlog has been eliminated, and the property services grant-in-aid provided by the Department has reduced from £29 million to £15 million in real terms. Reducing expenditure on property maintenance carries the risk that a maintenance backlog may recur. The Department did not originally address this risk, but we acknowledge that they have now taken steps to obtain the necessary assurance from their consultants (Paragraph 13).

(ii) The Department have set performance indicators for the Royal Household's larger projects and have now added a further indicator to enable them to assess performance on individual projects between £2,500 and £25,000. However, the performance indicators in place say nothing about whether the scope or timing of projects have changed. The Department should review their arrangements for performance monitoring to ensure that they have all the information they need to satisfy themselves that the annual programme of work agreed with the Royal Household, on which the grant-in-aid is based, has been delivered (Paragraph 14).

On the use of residential accommodation

(iii) The Committee expects full and helpful responses to its requests for information. Our predecessors did not receive the information they requested about the accommodation of officials in the Queen's Household because, although the information was readily available, the question was addressed to the wrong Accounting Officer. A more helpful response by the then Department of National Heritage would have been to redirect the question to the appropriate Department, in this case the Treasury, thus ensuring that the Committee received a full answer to its enquiry (Paragraph 24).

(iv) We therefore asked the Treasury to provide this information; however, more than two months later, at the time this report was prepared, the Treasury memorandum had still not been submitted despite the Committee having been told that it was readily available. The Paper has now been received but is incomplete. It has, therefore, not been considered in the context of this report but is annexed to the Minutes of Evidence (Paragraph 25).

(v) Since we last reported on the subject three years ago, the Royal Household have made some progress in letting properties outside the security cordon at commercial rents. The number has increased from five to 12 properties since 1998. With a theoretical maximum of some 30 properties, there is scope to let more such properties as they become available (Paragraph 26).

On the use of and accountability for visitor income

(vi) A share of the income from visitors to Windsor Castle is used to meet costs that would otherwise be met from the grant-in-aid. Until 1998-99 these receipts were shown on the face of the Department's accounts and a certified statement which was subject to departmental audit supported the amount involved. These arrangements served the needs of both transparency and accountability to Parliament, and in our view they should be reinstated.

(vii) While there are arrangements for the Comptroller and Auditor General to have access to records relating to the grant-in-aid, he does not have access to the records of the Royal Collection Trust. The Royal Household assured us that the Comptroller and Auditor General may see any information he requires in relation to the Royal Collection Trust. They have also said that they would be prepared for the Royal Collection Trust to be audited by the Comptroller and Auditor General. Such changes would improve Parliamentary accountability, and we look forward to the necessary arrangements being implemented (Paragraph 36).

THE MANAGEMENT OF PROPERTY MAINTENANCE

6. The Department have ultimate responsibility for the maintenance of the Occupied Royal Palaces, but day-to-day management and operating responsibility rest with the Royal Household. Since the Royal Household took over the management of property services in 1991 the amount of the annual grant-in-aid has fallen in real terms from £29 million in 1991-92 to some £15 million in 1999-2000. Over the same period, expenditure on major maintenance projects, the largest component of expenditure met from the grant-in-aid, has fallen in real terms from £18.7 million to £6.6 million.[6] When exceptional work on rewiring Windsor Castle, automatic fire detection and fire compartmentation is excluded, property maintenance has fallen from £13.5 million to £6.3 million over the same period (Figure 1).[7]

Figure 1: Expenditure on maintenance projects since 1991-92 (in real terms)[8]

Year	Total Expenditure £million	Expenditure excluding exceptional work £ million
1991-1992	18.7	13.5
1992-1993	16.5	9.0
1993-1994	11.5	7.1
1994-1995	10.8	7.5
1995-1996	11.6	8.8
1996-1997	10.7	7.2
1997-1998	7.2	4.6
1998-1999	7.2	6.2
1999-2000	6.6	6.3

7. In evidence, the Royal Household told the Committee that the Royal Collection Trust[9] was working to increase contributions from visitor income in order to reduce the level of cost falling on the grant-in-aid. Between 1993-94 and 1999-2000 expenditure of over £25 million on the Windsor Castle fire restoration was funded from revenues collected by the Royal Collection Trust from Buckingham Palace's visitor income and the net surplus from charges for entry to the Windsor Castle precincts. Following the completion of the fire restoration at the Castle, precincts income has been used for property services. In 1999-2000, the grant-in-aid was supplemented by some £2.2 million from the Windsor Castle precincts income. The figure is expected be £1.9 million in 2000-2001 and, depending on visitor numbers, the Royal Household hoped that sum would increase to £2.5 million during the next three to four years. Rents from residential and office accommodation in the Palaces, which totalled some £393,000 in 1999-2000, are also used to fund expenditure on property services. Buckingham Palace visitor income is now retained in full by the Royal Collection Trust.[10]

8. The Royal Household reported, at the time of the Comptroller and Auditor General's examination, that they had largely cleared the bulk of the maintenance backlog of £11.4 million that they inherited in 1991. Remaining work included some repairs to St James's Palace, Buckingham Palace and Windsor Castle and some rewiring of Buckingham Palace and Clarence House.[11] The Royal Household told the Committee that the outstanding work, costing about £600,000 had been cleared last year and there was now no backlog. They also said that they believed the buildings had never been in better condition.[12]

9. The Royal Household commission consultant surveyors to undertake a cyclical programme of quinquennial condition surveys of each palace to provide an independent review of the maintenance standard of the estate. The Department employ independent consultants to appraise the Royal Household's plans,[13] and they told us there had been no evidence from the quinquennial surveys that the reduction in maintenance expenditure was leading to any renewed maintenance backlog. They had not, however, sought specific assurances from their consultants to that effect. They believed that any backlog of uncompleted maintenance work which had been building up would have become apparent. Nevertheless, the Department had now asked their consultants to investigate.[14]

10. The Royal Household's annual report records their performance in delivering individual projects over £25,000 against two cost-related performance indicators that have been agreed with the Department. The targets set for these indicators have generally been met or exceeded over the last six years. As these are simple cost-related indicators, however, they say nothing about the quality of the work done or whether it has been necessary to adjust the scope of the project, as happened in three of the 16 projects examined by the National Audit Office. The Royal Household do not report their performance in delivering projects to time and consider that having a performance indicator in this area would not be helpful.[15]

11. We asked the Department how, in the absence of performance information on changes to the scope and timing of projects, they satisfy themselves that the annual programme agreed with the Royal Household has been delivered. They said that the portfolio of 15 performance targets that they had set for the Royal Household was designed to provide them with the reassurance they needed. Any shortfall on a given project would be reported to them in the Royal Household's quarterly returns and would be discussed with the Royal Household.[16]

12. Performance on lower value projects costing between £2,500 and £25,000, which represented some 30 per cent of the maintenance programme in 1998-99, has not been recorded in the Royal Household's annual report. The Department told the Committee that, following a recommendation by the Comptroller and Auditor General, the Royal Household had introduced a new performance indicator to assess the overall performance on smaller projects.[17]

Conclusions

13. The Royal Household inherited a maintenance backlog of £11.4 million when they took over the management of property services in 1991. Since then the maintenance backlog has been eliminated, and the property services grant-in-aid provided by the Department has reduced from £29 million to £15 million in real terms. Reducing expenditure on property maintenance carries the risk that a maintenance backlog may recur. The Department did not originally address this risk, but we acknowledge that they have now taken steps to obtain the necessary assurance from their consultants.

14. The Department have set performance indicators for the Royal Household's larger projects and have now added a further indicator to enable them to assess performance on individual projects between £2,500 and £25,000. However, the performance indicators in place say nothing about whether the scope or timing of projects have changed. The Department should review their arrangements for performance monitoring to ensure that they have all the information they need to satisfy themselves that the annual programme of work agreed with the Royal Household, on which the grant-in-aid is based, has been delivered.

THE USE OF RESIDENTIAL ACCOMMODATION

15. In December 1997, on the basis of an examination undertaken by our predecessor Committee, we reported on responsibilities for Royal Household remuneration and the provision of accommodation. We noted that the Royal Household's policy was to allocate the self-contained flats and houses that exist across the Occupied Royal Palaces Estate to members of the Royal Family who undertook official duties on behalf of the Queen, to employees of the Royal Household as part of their terms of service, and to pensioners.[18]

16. As regards the current entitlement to accommodation in the Royal Palaces, the Royal Household told us that the eligibility criteria for pensioner accommodation were that those concerned should have been housed in job-related accommodation for 20 years; that they should not have their own house; and that their pension from the Queen had to be less than (currently) £10,900 a year, equivalent to a salary on retirement of about £16,000 or £17,000 a year. However, 10 pensioners who did not meet these criteria had been accommodated before the Royal Household assumed responsibility in 1991 and before the present rules were implemented.[19]

17. In our previous report we noted that the Royal Household had completed a review of the self-contained accommodation and planned to reduce the number of apartments allocated to employees from 265 to 205. This included a reduction from 56 to 11 in the number of private secretaries and officials who were so accommodated, but the accommodation released would not become available until the then present postholders left or retired.[20] We asked the Royal Household about current employee entitlement to accommodation. They replied that 205 staff were currently entitled to housing and that the large majority of those so entitled were domestic workers, such as chauffeurs, gardeners, chefs, and maids. The number of accommodated private secretaries and officials had reduced from 56 to 39 and it remained the Royal Household's long-term intention to reduce this to 11, but reductions could only be made as people left or retired.[21]

18. During our predecessors' examination of this subject, the Department of National Heritage, then responsible for the grant-in-aid, did not provide certain information requested by the Comptroller and Auditor General, on behalf of the Committee, concerning private secretaries and officials in the Queen's Household who were accommodated in the Royal Palaces. The Department of National Heritage gave two reasons. First, the vast majority of staff involved were staff who were not funded by the grant-in-aid and did not fall within the Department's responsibility. Secondly, the responsibility for the allocation of accommodation was not one for the Government but for the Royal Household. The provision of accommodation was treated as a matter of overall remuneration which was not a matter for the Department.[22]

19. The Royal Household told the Committee that the Accounting Officer of the Department of National Heritage had provided all the information requested for those employees paid from the grant-in-aid. He had not been able to provide the information requested for those employees paid from the Civil List, as that was a responsibility of the Treasury. As far as the Royal Household were concerned, the information had always been readily available, though the witness informed the Committee that he was not in a position to provide the information because he too regarded it as a matter for the Treasury.[23] We asked the Treasury to provide us with this information; however, more than two months later, at the time this report was prepared, the Treasury memorandum had still not been submitted despite the Committee having been told that it was readily available. The Paper has now been received but is incomplete. It has, therefore, not been considered in the context of this report but is annexed to the Minutes of Evidence [24]

20. The Royal Household said that charges for accommodation provided to employees were set according to people's ability to pay under a formula set by the Treasury. This formula recognised that employees on Civil Service rates of pay would not be able to afford the full value for some of the apartments, but it was better that the apartments be used rather than be left empty. The rents charged depended on when an employee entered into their contract of employment. Those that entered their contract before the Royal Household assumed responsibility in 1991 were charged six per cent of their income, and those after 1991 were charged 16.7 per cent. The amounts charged more than covered the costs of maintaining the apartments, which was an improvement on the previous situation.[25]

21. The Royal Household said that there were now 234 residents in job-related or pensioner accommodation and that 70 of them paid no charges for their accommodation. Of these 70 residents, seven were members of the Royal Family who paid no rent because they were provided with accommodation in order to undertake official duties on behalf of The Queen. Thirteen were Military Knights at Windsor Castle who received accommodation in return for performing ceremonial duties for which they would otherwise be paid. There were 29 employees and 21 pensioners not charged for their accommodation, generally because they had entered into their contracts of employment or licences for occupation before the Royal Household had assumed responsibility for property services and completed a review of residential accommodation. For those employees who were not charged, the provision of residential accommodation had been taken into account in setting their salaries.[26]

22. In our previous report[27] we recognised that the staff allocated accommodation would not be able to occupy apartments at market rents, and that properties within the security cordons would therefore be unoccupied if commercial rents were charged. The Royal Household planned to rent out apartments outside the police security cordons as they became vacant. The Treasury's formal reply[28] stated that the number of accommodation units available for commercial letting was well ahead of earlier predictions. By April 1998 five apartments had been let commercially and a further six lettings were expected to be agreed by 2000-2001. Timing was largely dependent upon staff retirements.[29]

23. The Royal Household informed the Committee that they were now renting out commercially 12 apartments outside the security cordons, and that they wanted to move towards the theoretical maximum of about 30 as people left or retired. They subsequently provided us with details of 16 commercial lettings of which two were to the Ministry of Defence and two were for office rather than residential use. The total annual rents for these 16 properties were some £418,000.[30]

Conclusions

24. The Committee expects full and helpful responses to its requests for information. Our predecessors did not receive the information they requested about the accommodation of officials in the Queen's Household because, although the information was readily available, the question was addressed to the wrong Accounting Officer. A more helpful response by the then Department of National Heritage would have been to redirect the question to the appropriate Department, in this case the Treasury, thus ensuring that the Committee received a full answer to its enquiry.

25. We therefore asked the Treasury to provide this information; however, more than two months later, at the time this report was prepared, the Treasury memorandum had still not been submitted despite the Committee having been told that it was readily available. The Paper has now been received but is incomplete. It has, therefore, not been considered in the context of this report but is annexed to the Minutes of Evidence.

26. Since we last reported on the subject three years ago, the Royal Household have made some progress in letting properties outside the security cordon at commercial rents. The number has increased from five to 12 properties since 1998. With a theoretical maximum of some 30 properties, there is scope to let more such properties as they become available.

THE USE OF AND ACCOUNTABILITY FOR VISITOR INCOME

27. Following the fire at Windsor Castle in 1992, the then Secretary of State for National Heritage announced that the Queen was to open the State Rooms in Buckingham Palace to the public for eight weeks each summer to help pay for the costs of restoring the Castle.[31] In the period 1993-1994 to 1999-2000 inclusive, contributions for the fire restoration at Windsor Castle from visitor income there and at Buckingham Palace were £11.7 million and £13.7 million respectively.[32] The Royal Household told us that all the money from the Buckingham Palace summer opening had gone to the fire restoration. This was not the case at Windsor Castle because charges had been made for entry to the Castle before the fire.[33]

28. Before the fire at Windsor Castle the Royal Collection Trust, the Privy Purse Charitable Trust (a charitable trust within the Royal Household) and St George's Chapel collected income from separate charges to visitors to the State Apartments, Queen Mary's Dolls House and St George's Chapel respectively. After the fire these arrangements were replaced by a new combined charge for entry to the Castle and its precincts, initially to raise money for the restoration. The Department of National Heritage, the Royal Household, the Royal Collection Trust and St George's Chapel agreed a formula to share annually the income from the combined entry charge, after deducting the costs of collection and a management fee for Royal Collection Enterprises Limited (the commercial arm of the Royal Collection Trust). The formula compensates those bodies that previously charged separately by allocating them a share of income from the combined charge based on the income (net of the costs of collection) they used to receive from their separate entrance charges (Figure 2). The remaining balance, the income from the precincts, was allocated to fund the fire restoration.[34] Following the completion of the fire restoration, the Royal Household have agreed that the net surplus from the combined entry charge, which was some £2.2 million in 1999-2000, should be used to meet maintenance costs which would otherwise be met from the grant-in-aid.[35]

Figure 2 Allocation of visitor income at Windsor Castle[36]

Recipient	Previous net receipts from separate entry charges	Allocated share under the formula for distributing receipts from the combined entry charge.
		1998-1999	1999-2000
	£000	£000	£000
Royal Collection Trust	1,660	1,889	1,888
St George's Chapel	573	897	859
Privy Purse Charitable Trust	280	281	281

29. The Committee asked the Royal Household what had happened to the Buckingham Palace receipts following the completion of the fire restoration. They said that the receipts had been used to maintain the Royal Collection, one of the largest collections of works of art in the country.[37] The sum involved for 1999-2000 had been some £1.3 million.[38] The Department of National Heritage told our predecessor Committee that income from Buckingham Palace was proper to the Royal Collection because, in accordance with the long established precedent of visitors to the State Apartments of Windsor, the principal purpose of visiting was accepted as viewing the works of art and other items from the Royal Collection on display.[39]

30. We asked who had approved the decision that visitor income at Buckingham Palace should be paid to the Royal Collection Trust. The Royal Household told us that no approval had been needed because the income belonged to The Queen. When the Royal Collection Trust had been established and the state rooms at Buckingham Palace opened to the public in 1993, the matter had been discussed with the Treasury. The Queen, acting on the advice of Ministers, had given the income to the Royal Collection Trust.[40]

31. The Royal Household confirmed that both the Occupied Royal Palaces and the Royal Collection were state assets held by The Queen as Sovereign in trust for the nation.[41] When asked about other state assets that generate visitor income and how they were treated, the Department told the Committee that English Heritage and the Historic Royal Palaces Agency were examples of bodies with state assets where income from visitors was used for the upkeep of the properties. In those cases, how such income was used was the Government's responsibility, but that was not the case in respect of state assets held by the Royal Household.[42]

32. The Committee was nevertheless told by the Accounting Officer "that it is absolutely essential from the Department's point of view that the net surplus from charges for entry into the [Windsor] Castle precincts continue to be used for property services, thus meeting costs which would otherwise be met from Grant-in-aid".[43] That point was re-emphasised in a later reply when the Department confirmed that they had entered into an agreement with the Palace "that income will be used to reduce grant-in-aid".[44]

33. An unsatisfactory feature of these arrangements, however, is that the Department stopped verifying the money paid through the Royal Collection Trust because "the receipts were no longer subject to Departmental audit when they ceased to be shown on the face of the departmental account".[45] Prior to 1998-99 the income was shown on the face of the Department's accounts, and the amount involved was supported by a detailed statement, certified by the auditors of Royal Collection Enterprises Limited, setting out how the Windsor Castle income had been apportioned to each recipient in accordance with the agreed formula. As Government moves towards more transparent accounting the Committee believes that it would be clearer if the net surpluses were again returned to the Department and the Grant-in-Aid figure on the face of the Department's accounts showed the gross figure, with suitable annotation of the surplus reserved from the palace.

34. We asked the Royal Household about access by the Comptroller and Auditor General to the Royal Collection Trust. They told us that while the Comptroller and Auditor General did not have access to the Royal Collection Trust, the Royal Household had never refused to provide any information the National Audit Office had requested. They could have any information they would like to see about the Royal Collection Trust. The Comptroller and Auditor General said that, while it was certainly true that the Royal Household had always responded to requests he had made for information, he was not the external auditor of the Royal Collection Trust and therefore he worked on a grace-and-favour basis rather than by right. He thought there was a case that he should be the external auditor of the Trust as part of the general aim that he should have the right to audit public money in whatever form it was presented.[46] The Royal Household told us that they would be prepared, should Parliament so decide, for the Royal Collection Trust to be audited by the Comptroller and Auditor General.[47]

Conclusions

35. A share of the income from visitors to Windsor Castle is used to meet costs that would otherwise be met from the grant-in-aid. Until 1998-99 these receipts were shown on the face of the Department's accounts and a certified statement which was subject to departmental audit supported the amount involved. These arrangements served the needs of both transparency and accountability to Parliament, and in our view they should be reinstated.

36. While there are arrangements for the Comptroller and Auditor General to have access to records relating to the grant-in-aid, he does not have access to the records of the Royal Collection Trust. The Royal Household assured us that the Comptroller and Auditor General may see any information he requires in relation to the Royal Collection Trust. They have also said that they would be prepared for the Royal Collection Trust to be audited by the Comptroller and Auditor General. Such changes would improve Parliamentary accountability, and we look forward to the necessary arrangements being implemented.

1 The Occupied Royal Palaces covered by the grant-in-aid are: Buckingham Palace; Buckingham Palace Mews and Gardens; St James's Palace; Clarence House and Marlborough House Mews; Kensington Palace-residential areas; Hampton Court Mews and Paddocks; Windsor Castle; Windsor Castle Royal Mews; Windsor Home and Great Parks-some buildings (Source: C&AG's Report) Back

2 C&AG's Report, HC 563 of Session 1999-2000 Maintaining the Royal Palaces, paras 1.2, 1.4, and Evidence, pp 2-6 Back

3 ibid Back

4 40^th Report from the Committee of Public Accounts, Session 1993-1994 (HC 316 (93-94)) and 9^th Report from the Committee of Public Accounts, Session 1997-1998 (HC 394 (97-98)) Back

5 C&AG's Report, para 1.1 Back

6 C&AG's Report, para 2.3, Evidence, pp 2-6, Figures 7-8. Real terms are expressed in 1998-99 prices Back

7 Evidence, Appendix 2, pp 27-41 Back

8 C&AG's Report, and Evidence, Appendix 2, pp 27-41 Back

9 The Royal Collection Trust was established on 31 March 1993 in order to take on responsibility for the trading activities which fund the Royal Collection and Royal Archives and to determine how the income generated should be used. The term Royal Collection is used to describe those works of art held by the Queen as Sovereign in trust for her successors and the Nation. It is a vast assemblage of works of art of all kinds-pictures, drawings, miniatures, prints, books, manuscripts, photographs, furniture, ceramics, silver, gems, glass, sculpture, textiles, and all manner of ornaments. (Source: The Royal Collection Trust Annual Report 1994) Back

10 Evidence, Q49 and Evidence, Appendix 2, pp 27-41 Back

11 C&AG's Report, para 3.9 Back

12 Evidence, Qs 1-2, 7, 132 Back