Select Committee on Public Accounts Nineteenth Report


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
2003-0411.9 8.3 463.1267.8
2002-039.9 8.0 408.1227.6
2001-027.8 7.7 356.8220.9
2000-017.5 7.3 321.1203.6
1999-20006.9 5.8 308.3193.0


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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Prepared 28 July 2005