Examination of Witnesses (Questions 128
- 139)
WEDNESDAY 3 MARCH 2010
MR ROGER
BRIGHT, CB
Q128 Chairman: Mr Bright, can I welcome
you to this evidence session? Could you formally identify yourself
for the shorthand writer, please?
Mr Bright:
My name is Roger Bright. I am chief executive of the Crown Estate.
Q129 Chairman: Thank you. We believe
this is the first inquiry into the Crown Estate by a committee
of either House since the Commissioners were established in their
present form 50 years ago. Could you just very briefly explain
what you do and why you do it?
Mr Bright: The Crown Estate is
a large and diverse property business comprising urban, rural
and marine properties right the way across the UK. We operate
under a commercial remit which is set out in the 1961 Crown Estate
Act which requires us to maintain and enhance the value of the
estate and the return we obtain from it, subject to the requirements
of good management. The properties for which we are responsible
are described as the hereditary properties of the monarch. They
are not the Queen's personal property, but we are therefore not
a government agency; nor are we a non-departmental, public body.
That said, we always work with the grain of government policy,
both in terms of the UK Government and also in the devolved nations.
As a public body, we have a very keen sense of our wider responsibilities
to be a good and responsible landlord. We seek to be good towards
our tenants, our customers and our other stakeholders. Finally,
we are very conscious that we have a large number of, if you like,
heritage land and buildings under our ownership. We have over
1,000 listed buildings. We have some 1,500 Sites of Special Scientific
Interest across the marine and rural estate, so we have a very
keen sense of stewardship as well.
Q130 Chairman: You state in your
memorandum that you are not the sovereign's private estate; nor
are you owned by government. In practical terms, what does that
mean for you as a manager?
Mr Bright: What that means is
that we are entrusted with the management of the properties that
are under our management. The Act gives us all the powers of ownership,
although we are not owners in our own right. That means that for
example we are able to acquire properties and we are able to sell
properties. We are not a static estate. We are a dynamic estate
and we buy and sell properties in order to maintain the performance
of the portfolio over time.
Q131 Chairman: Last year the value
of that portfolio fell by about £1 billion. What is a reasonable
number of years to assess your performance in managing the portfolio?
Mr Bright: Probably a 10 year
time horizon gives you a good feel for that. This is a long term
business. This is not a short term business. If you look at our
performance over the last 10 years, I think we have produced creditable
results. We have out-performed the industry benchmark for total
return and we have increased our revenue to the Treasury by some
70% over that time.
Q132 Chairman: If the capital value
of your estate has increased significantly over a period, as you
suggest, could the Commissioners realise part of that increase
as increased revenue income for the Treasury?
Mr Bright: Not directly because
the estate is constituted effectively as a trust. This is reflected
in the Crown Estate Act. That draws a clear distinction between
capital and revenue. What is capital is, if you like, part of
the Crown Estate and the revenue goes to the Treasury. The revenue
of course is generated by the capital and one of the reasons why
we need to be able to buy and sell, to invest in other properties,
is in order to try and make sure that we sustain the revenue performance
of the estate.
Q133 Chairman: It is possible therefore
that you could decide or be asked to convert more of the capital
into revenue for the Treasury?
Mr Bright: We cannot directly
convert capital into revenue, but we can invest capital in assets
that generate more revenue than they do at present. We think it
is very important to have sustainable returns. You can indeed
increase the returns rapidly by investing in poorer quality property
because poorer quality property carries higher risk and will give
you a better return in the short run, but it will give you a poor
return in the long run.
Q134 Chairman: Who sets your financial
target? Is the Treasury consulted or involved in the setting of
your financial target?
Mr Bright: They are certainly
consulted and involved. Basically, how it works is we have an
annual budgeting process, as you would expect, and that is conducted
in the light of our investment strategy and market forecasts,
cash flows and so on. We go through an annual budgeting process,
out of which comes the projected revenue surplus that we expect
to be able to generate in the coming year. We then discuss that
with the Treasury and the Treasury will challenge us. They will
test the assumptions upon which we have produced our figures and
there will be a debate. Out of that will come an agreed formulation
for the budget figure for the year ahead. This is underpinned
by a formula that we agreed with the Treasury several years ago
which is that our revenue surplus should increase at the very
least in line with the GDP deflator each year which, as I am sure
you know, is effectively a proxy for inflation. We aim to do better
than that and, generally speaking, we have done better than that.
Q135 Chairman: Can you be directed
to do better than that by the Treasury?
Mr Bright: The Treasury has a
power of direction but to date they have not used it.
Q136 Chairman: That is because you
have negotiated a target with them each time that they are happy
with.
Mr Bright: It would appear so,
yes.
Q137 Sir Peter Viggers: Compared
with other property vehicles, you have three substantial inhibitions.
You are not allowed to borrow to finance investment. You are not
allowed to retain revenue reserves for investment. You are not
allowed to invest in land through limited companies, which is
a significant disadvantage because you cannot use modern investment
vehicles, and yet you have out-performed your peers. How is this?
Mr Bright: I would think it is
a combination of the fact that a number of the properties that
we own are of a very high quality. They are prime properties.
They are in many instances situated in central London, in London's
West End, which is, as I am sure you are aware, a very strong
performing centre. One of the other reasons is that our portfolio
is very diverse. We have a big commercial property portfolio but
we have a rural portfolio and we have a marine portfolio. Those
portfolios perform in different ways. The rural portfolio will
for example give us capital growth. The marine portfolio will
tend to give us high revenue returns. The combination of the quality
of the assets and the diversity of the estate has certainly helped
us considerably. If we were able to relax some of the constraints
that apply in the Act, we would probably be able to enhance our
performance further still.
Q138 Sir Peter Viggers: Is that the
view of all of you in the Crown Estate, that there would be advantages
in easing some of these restrictions? Is that the general view
of your colleagues?
Mr Bright: I think it is. We have
managed to live within the 1961 Act as it is. As you kindly observed,
we have managed to perform reasonably well within that constraint,
but as you also mentioned, the property industry has moved on
a long way since 1961. It is a more sophisticated industry now
than used to be the case. It uses a number of different kinds
of vehicles. Having the ability to participate in some of those
would, I am sure, be helpful but we are not in the business of
for example entertaining high gearing; we are not in the business
of getting involved in risky vehicles. If there were to be some
relaxation of those constraints, we would want to use them very
judiciously and carefully.
Q139 Sir Peter Viggers: I was going
to put the opposite point of view, which is that when the statutory
framework was created these three restrictions must have been
imposed for a purpose. Do they give you some benefit?
Mr Bright: I suppose there are
those who say that the ability to borrow would be a mixed blessing.
When the market is going strongly, there are those who say, "What
a shame you cannot borrow." When the market has had the sorts
of difficulties it has had in the last year or two, there may
be a view saying, "Actually, perhaps we are rather fortunate
that we have not been able to be highly geared." If we were
able to borrow, we would be looking for a modest and sensible
level of gearing which would enable us, if you like, to do sensible
asset management.
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