1 Management and governance
1. The annual accounts show that in the last
five years the Duchies have achieved substantial financial growth.
The revenue surplus of the Duchy of Cornwall has grown from £6.9 million
to £11.9 million, an increase of 72%; and the surplus of
the Duchy of Lancaster has risen by 44% from £5.8 million
to £8.3 million (Figure 2). Over the same period,
the capital value of the Duchy of Cornwall has grown by 50% and
of the Duchy of Lancaster by 39%. The Duchies are not subject
to corporation or capital gains tax.[3]
Figure
2: Revenue surplus and capital value of the Duchies, 1999-2000
to 2003-04
| Revenue surplus generated during the year (£ million)
| | Total capital value at year end (£ million)
|
| Year
| Duchy of Cornwall
| Duchy of Lancaster
| | Duchy of Cornwall
| Duchy of Lancaster
|
| 2003-04 | 11.9
| 8.3 |
| 463.1 | 267.8
|
| 2002-03 | 9.9
| 8.0 |
| 408.1 | 227.6
|
| 2001-02 | 7.8
| 7.7 |
| 356.8 | 220.9
|
| 2000-01 | 7.5
| 7.3 |
| 321.1 | 203.6
|
| 1999-2000 | 6.9
| 5.8 |
| 308.3 | 193.0
|
Source: The Report and Financial Statements of the Duchy of Cornwall
for 1999-2000 to 2003-04; The Report and Accounts of the Duchy
of Lancaster for 1999-2000 to 2003-04
2. The Duchies date from the fourteenth
century and their size and the income they generate has evolved
over the years. But when asked whether any assessment had been
made of the relative income from each Duchy against the needs
of their beneficiaries, the Treasury said that it did not consider
it needed to take a view.[4]
3. There are three main reasons for the growth in
the revenue surplus generated by the Duchy of Cornwall: in terms
of its investment strategy, the Duchy has been switching from
long held leases into commercial property; it has changed some
of its accountancy practices; and it has controlled its costs
better. Growth in the Duchy of Lancaster's surplus has been lower
but also significant, and the Duchy considered it had consistently
outperformed the industry benchmarks it used to assess the performance
of its investment portfolio. But the two Duchies do not appear
to benchmark against each other.[5]
4. The Duchies set targets for their financial performance,
but these targets and performance against them are not set out
in their annual accounts. At June 2004 the Duchy of Lancaster's
target for capital value was to achieve growth of 1% above the
retail prices index, measured over a three year period. The Duchy
of Cornwall's aim is to grow its capital value by at least the
rate of inflation, and performance against relevant benchmarks
is also important.[6]
5. The Prince of Wales has delegated executive responsibility
for the management of the Duchy of Cornwall to the Secretary and
Keeper of the Records, the Senior Executive of the Duchy. The
management of the Duchy operates under the overall guidance of
the Prince's Council, a non-executive body (with the exception
of the Secretary and Keeper of the Records) which provides advice
to The Prince of Wales with regard to the management of the Duchy.
The Duchy seeks to follow the Combined Code on corporate governance
and has a number of sub-committees which sit between its executive
management and the Prince's Council, including a finance and audit
committee and a remuneration committee.[7]
6. The Prince of Wales plays an active role in the
management of the Duchy. He chairs and appoints Members to the
Prince's Council, approaching senior members of industry to give
him advice on relevant areas such as finance, law, the environment
and farming. In view of the Committee's interest in the scale
of the growth in the surpluses paid to The Prince, we were surprised
to learn that he issues directions about the management of the
estate and has the right to determine the level of the income
raised, providing the Duchy meets the requirements of the Treasury
(see para 13 below). The Duchy did not consider there was any
conflict of interest between The Prince being actively involved
in management decisions and his being the current beneficiary
of the surplus, and stressed the significant control that the
Treasury has over the Duchy's affairs.[8]
7. The Duchy's investment decisions reflect the
keen interest The Prince of Wales has in areas such as the built
environment and environmental sustainability. For example, The
Prince has had a strong influence on the Poundbury development
in Dorset which departs from conventional types of housing development
in terms of urban design and planning.[9]
8. Although The Prince of Wales has no access to
the capital of the Duchy, with the approval of the Treasury, the
Duchy's revenue account may on occasion borrow from capital. In
2003-04 loans of up to £1.2 million from the capital
account for revenue purposes were allowed and in the event some
£600,000 was borrowed. The money was used to help run the
business and the capital account received interest in return for
the loan. But the specific purpose of the loan and the terms were
not specified in the Duchy's accounts.[10]
It seems that the borrowing limit is being reduced with the approval
of the Treasury and that the decision to do this was taken before
we took evidence from the Duchies. The Committee values openness
on the part of witnesses and considers that they could have been
more helpful on this point.[11]
9. The Committee was interested in why, in 1998,
the Duchy of Cornwall paid The Prince of Wales £2.3 million
for timber which was growing on Duchy land, had appeared as an
asset on the Duchy's balance sheet, and had been treated as a
reserve to be distributable when the timber was cut. The Duchy
explained that the cost of planting and maintaining the woodlands
had previously been met from the Duchy's revenue account, which
had reduced the surpluses The Prince had received. The Prince
could have sold the timber to another party but the Duchy decided
it should buy the timber as a capital investment, following an
independent valuation.[12]
10. The Committee was also interested in the arrangements
for The Prince of Wales's occupancy of Highgrove. The Duchy of
Cornwall explained that it had purchased Highgrove and that The
Prince pays a full market rent, assessed by two separate valuers.
The present rent for Highgrove House and land is £336,000
a year. The Committee was surprised to learn that the rental
income is credited to the Duchy's revenue account as this must
mean that it contributes to the surplus and therefore effectively
goes back to The Prince.[13]
11. The Duchy of Lancaster has a different form of
governance from Cornwall. The Queen is not directly involved in
the management of the Duchy, which is administered on behalf of
the Sovereign by the Chancellor of the Duchy and the Clerk of
the Council. The Chancellor is a Government Minister and his salary
is not paid by the Duchy, although he is entitled to receive £2,000
a year from the Duchy. Certain functions, particularly those relating
to asset management, have been revocably delegated by the Chancellor
to the Council, but the accounts do not make clear what those
functions are or what functions the Chancellor retains.[14]
12. Appointments to the Council of the Duchy of Lancaster
are made by The Queen, on the advice of the Chancellor. The Duchy
follows the good practice principles which apply for public appointments.
Two recent vacancies were advertised on the Cabinet Office website
and the Duchy employed an appointments specialist to produce a
shortlist. Interviews were conducted by a panel (including a Treasury
official acting as an independent member), who made a recommendation
to the Chancellor, who then made a recommendation to The Queen.
The Duchy explained that it was putting proposals to its Council
for the adoption of elements of the Combined Code on corporate
governance, including establishing an audit committee.[15]
13. One significant difference in the governance
arrangements of the Duchies is the role the Treasury plays in
respect of the Duchy of Cornwall. Under the Duchy of Cornwall
Management Act 1982, Treasury approval is needed for major capital
transactions. In considering proposals the Treasury takes account
of three statutory criteria: it has to balance the interests of
the current and future Dukes of Cornwall; consider the interests
of people living in the vicinity who may be affected; and consider
whether the proposal is conducive to the good management of the
Duchy.[16]
14. The external audit arrangements for the Duchies
are that the accounts of the Duchy of Cornwall are audited by
Mr Rodger Hughes, who is appointed by The Prince of Wales. Mr Hughes
is a partner in PricewaterhouseCoopers LLP, who provide the resources
to conduct the audit. The accounts of the Duchy of Lancaster are
audited by Howarth Clarke Whitehill, who are appointed by the
Council. In correspondence with the Duchies in 2004 and again
when we questioned Duchy officials in February this year, we put
it to the Duchies that it would be of assistance if the Comptroller
and Auditor General could have access to their books and records.
However, the Duchies considered that as private estates they should
be able to choose their own auditors and were satisfied with the
current arrangements, seeing no need for the Comptroller and Auditor
General to have a role in the process.[17]
3 Q 4 Back
4
Qq 18-19 Back
5
Qq 2, 48-49, 321-322 Back
6
Q 320; Ev 31 Back
7
Q 135 Back
8
Qq 6-7, 112, 117 Back
9
Qq 209-212 Back
10
Qq 25-26, 55 Back
11
ibid Back
12
Qq 323-333; Ev 35 Back
13
Q 297-300; Ev 35 Back
14
Qq 154, 160, 184 Back
15
Qq 15, 199-200, 218 Back
16
Qq 115, 221 Back
17
Qq 116, 123, 201 Back
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