Examination of Witnesses (Questions 220-239)
THE ACCOUNTS
OF THE
DUCHIES OF
CORNWALL AND
LANCASTER
7 FEBRUARY 2005
Q220 Mrs Browning: But would never
overturn your decision?
Mr Clarke: I cannot speak for
the Chancellor. He could.
Q221 Mrs Browning: Gentlemen, could
I bring you back to something that was raised right at the beginning
and has been throughout these deliberations, and that is this
question of the capital account and the revenue account and the
transfer of money. I just want to clarify, because you have answered
a lot of questions on this, that ultimately of the £1.2 million
you said that £600,000 had only been drawn down of the original
application and that was all fine as far as the Treasury was concerned.
Mr Glicksman, I wonder if you could just tell us, when these applications
come forward, what are the criteria behind what the Treasury will
and will not allow on something specific, as we read it, that
is not the norm in terms of the process here?
Mr Glicksman: There are three
statutory criteria that we have to look at. We have to balance
the interests of the current and future Dukes; we have to consider
the interests of people living in the vicinity who may be affected;
and we have to consider whether it is conducive to the good management
of the Duchy.
Q222 Mrs Browning: So in this particular
case where over the last five years we have seen in the Duchy
of Cornwall revenue surpluses of 72% and the capital account appreciating
by some 50%, is it just that £1.2 million looks a pretty
small sum in those circumstances or do you actually challenge
why this money is needed for transfer?
Mr Glicksman: No, we look at each
case carefully. We do not consider £1.2 million to be a small
sum.
Q223 Mrs Browning: Has there ever
been an occasion when there has been an application for a similar
transfer that you have felt was not appropriate?
Mr Glicksman: We try to keep in
close touch with the Duchy to ensure that they are aware of the
approaches that we would take towards particular transactions
and try to ensure that transactions do not come forward that we
might find difficult to approve.
Q224 Mrs Browning: Mr Clarke, I wonder
if I can just come on to you because we have seen exchanges of
correspondence between yourself and the Chairman of this Committee
in the months of last year and I have to say, looking at your
letter to our Chairman on 11 June 2004, you did not sound best
pleased at the thought that all this was going to occur in terms
of scrutiny and production of accounts. I see you are smiling
now but it did not look as though you were smiling when you wrote
the letter of 11 June. In particular, you said: "It is not
believed that anything that can be gained by such consent being
given . . ." et cetera, et cetera. I wonder if you have had
time to reflect on that and perhaps you or Mr Ross can answer
as to whether you think there is something to be gained by being
more transparent with the accounts of the Duchies?
Mr Clarke: First of all, that
letter quite correctly, on reflection, was felt to be slightly
terse and I apologise to the Committee for that, hence the Chairman
followed it up with a much better crafted letter than I did. I
think there is obvious value in transparency and we try very hard
to achieve that transparency. There are areas that this exercise
has brought to our attention and we will be looking at in the
production of our accounts in the coming year. Certainly from
the point of view of the PAC and the NAO we do firmly believe
that we are a private estate. I have done my little bit of history
and I am not a history scholar but it was the best I could do.
We do feel, as a private estate, we should continue to be run
as a private estate utilising consultants from the open market
who are professional and can undertake a task which serves our
purpose.
Q225 Mrs Browning: Thank you. Mr
Ross?
Mr Ross: Frankly, coming before
this Committee is a daunting procedure. We have taken it extremely
seriously. I would also like to take away a relatively positive
view about the whole process. It is something that makes one look
very carefully at all the subjects that have been addressed today
and I feel that these are things that we will take away and look
at in a constructive way.
Q226 Mrs Browning: I hope you will
take it that this Committee is looking at value for money because
there is value for money in the public interest here, not least
because of the tax concessions that were mentioned earlier—no
capital gains tax paid, no corporation tax paid—and as a
result of those tax breaks it is important that perhaps this Committee
should have more access to information and particularly Sir John
Bourn has more access to information in order to put reports before
this Committee. Do you feel perhaps in the future you would be
more open with information that we might need to look at?
Mr Ross: This is the first time
that this subject has been raised with us. As Mr Glicksman has
said, we have regular meetings with the Treasury and we do co-operate.
We do not dogmatically resist everything, we do go along with
their proposals. As he said, there have not been any areas of
total disagreement. In fact, I cannot remember in my time any
areas of marginal disagreement. We report the cases thoroughly.
We are genuinely pleased that we do present the accounts in the
way that we do, but we still take into account the points that
have been raised today.
Q227 Mrs Browning: You have said
throughout this afternoon you feel you should be regarded more
as a trust than a company, but could I come to, for example, the
way you manage your property portfolio and the transparency there
in the Duchy of Cornwall. For example, 80% of your properties
are internally valued, 20% externally by names we would all recognise,
but under generally accepted accountancy practice you do not disclose
your valuers' qualifications for the 80% of your portfolio that
is valued internally. Why is that?
Mr Ross: We value our entire estate
on a rotational basis. The external values we have are advised
to our regulators. Our internal valuers act under instructions;
they are qualified chartered surveyors and they act under the
directions of our professional advisers.
Q228 Mrs Browning: Property seems
to be very important to you. I notice on the very first page of
your accounts you pray in aid a whole range of things which involve
the property and land base, and then further on, on page 5, in
particular you flag up the fact that "affordable housing
featured highly within the Duchy during the year . . ." and
you also mention affordable housing, social housing, in the Poundbury
development. Further down, as a Devon Member of Parliament I was
interested to see your interest in the reinvestment in the Isles
of Scilly, right down at the far end. Can you tell us, in the
Duchy's view what is affordable housing?
Mr Ross: Affordable housing is
the provision of housing—and I do not have a particularly
formal description—
Q229 Mrs Browning: It is a hard question,
I could not answer it.
Mr Ross: It is housing which is
affordable at the salary rates and wages which are being paid
in those areas. It is a formula in fact which is more clearly
defined in discussions with the local authorities.
Q230 Mrs Browning: So how does the
Duchy balance this recognition, particularly in the West Country
and the further west you go, of lower-than-average wages, higher-than-average
house prices and wanting to make a contribution to affordable,
social housing in the West Country, with your need to get a return
and value for your capital investments?
Mr Ross: Our view about rents
is that in general they should be fixed at the open market rate
with whomever you are dealing, because if you do not do that you
are in many ways not being fair to the people who are paying the
proper rent. We then have an obligation to get the proper rents
through the Management Act, but what we can do is give concessions
outside the rental negotiations providing they are not binding
on the future Duke. Those are the terms. So what we tend to do
is negotiate rents—and this is away from affordable housing
at the moment—and then look at the way in which concessions
could be made, either to residential tenants, agricultural tenants
or commercial tenants.
Q231 Mrs Browning: Is the social
housing in Poundbury all rented property, or are people able to
access lower cost purchase or part-rent/part-purchase?
Mr Ross: It is very much mixed.
We do administer that at the moment through housing associations,
so the Guinness Trust are the main occupiers. Effectively they
take the land from us, either on a lease or by purchase, build
the houses and then operate an affordable housing agenda.
Q232 Mrs Browning: In terms of property
in the Duchy of Lancaster, why was £2.3 million of property
reclassified from property occupied by the Duchy to commercial
property in 2003-04?
Mr Clarke: This was the Duchy
offices where we occupied the whole building. It is a very complicated
building and 1 Lancaster Place sits on the end of Brettenham House,
which overlooks the river by Waterloo Bridge, and we occupied
the whole of the section which was basically four floors when
we had far more staff. Now we have consolidated, and we are refurbishing
the building and putting certainly two-and-a-bit floors out on
to the market to let when we have completed the works.
Q233 Mrs Browning: Why have you not
disclosed who undertook the valuations of your property estate?
Mr Clarke: We say within the notes
to the accounts that we have chartered surveyors who undertake
that, and they undertake it in accordance with the Red Book—what
we call the Red Book, which is the Valuation Bible.
Q234 Mrs Browning: Just to come back
to Mr Ross, I do not think you actually answered my question about
80% of the property that is valued by people whose qualifications
are not listed.
Mr Ross: There is, frankly, a
balance between properties being valued every year and properties
being valued on a rotation.
Q235 Mrs Browning: Is there any reason
why, however frequently you do it, or whatever the process is,
you cannot, as with generally accepted accounting procedure, disclose
the qualifications of the people carrying out the exercise? After
all, quite an important aspect of your accounts is how you value
your capital asset.
Mr Willis: Perhaps I could just
say that that 20% by number which are valued each year externally
is nearer 60% by value, so it is a fair hike in value terms; 20%
by number, 60% by value. Yes, we could indeed disclose more fully
who the internal valuers are who are valuing the remainder.
Q236 Mrs Browning: Will you do that,
because that seems to me to be best practice? When you talked
at the beginning about benchmarking, I would have thought that
was one of the common practices which could be quite easily benchmarked.
It is just that sort of little thing, if you are reluctant to
disclose those sort of things which one would normally expect
to see in accounts, which makes people on the Republican tendency,
of which I do not include myself, feel somehow you are trying
to cover something up.
Mr Ross: I see the point. In fact
it is a process of getting round the estates as well because this
is a process which has been going on for five years since these
valuations were disclosed. Our professional external valuers are
valuing roughly a fifth per year and they have now virtually inspected
the entire estate, then the valuation process is still supervised
by them, and all the computer information we have available, which
is rental increases and things of that kind, and the actual process
is visiting the properties by the professional valuers. I still
take your point. The dominance of our professional valuers, partly
because of the point Mr Willis has made and also because of the
fact they have inspected all these properties which are not changing
at any great pace, I think gives good accountability.
Q237 Mr Davidson: Mr Ross, I wonder
if I could ask you to clarify the tax which is not paid, as it
were, by Cornwall? It has been suggested to me that it is worth
between £20 and £40 million a year. Can you give me
your estimate?
Mr Ross: I could not give you
such an estimate.
Q238 Mr Davidson: Why not?
Mr Ross: Which figure did you
say?
Q239 Mr Davidson: Between £20
and £40 million a year.
Mr Ross: Which particular tax
are we talking about?
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