House of Commons - The management of the Crown Estate

The management of the Crown Estate - Treasury Contents

2 BACKGROUND

Inquiry scope

5. The CEC's 2008-09 Annual Report describes their objective as to "earn a surplus for the benefit of the UK taxpayer, and enhance the value of the estates we manage."[4] Our Report focuses on their performance and the challenges they face in their four business divisions: The Urban Estate; The Rural Estate; The Windsor Estate; and, the Marine Estate, as our original terms of reference indicated.

6. As our inquiry progressed, however, we came to appreciate that, more fundamentally, the nature of the CEC, and the Crown Estate they manage, was not widely understood or even easy to comprehend. As we suggested to the CEC during oral evidence, even their Annual Report is arguably misleading in stating that the surplus revenue they raise is for the benefit of taxpayers, as it goes into the Consolidated Fund, which is a general fund that the government uses for public expenditure. We have, therefore, widened the scope of our inquiry to include an examination of the nature of the CEC organisation. We considered this essential if we were to evaluate their performance in their four business divisions. The CEC's remit was articulated by statute 50 years ago, in the Crown Estate Act 1961. Our inquiry has also led us to consider whether the interpretation of the CECs' remit, or even the remit itself, needs to be reviewed.

7. As our scope widened to allow a more strategic approach to our scrutiny of the CEC, so we had to be even more careful to limit our work in other ways. Given the need to complete our work before the dissolution of Parliament, this was a necessarily short inquiry. Accordingly, our Report is not intended as the last word on the CEC. Rather, we are seeking to lay the groundwork for further scrutiny and more detailed consideration and review. We have not looked, for example, at the management structure of the CEC, or assessed the efficiency of their administration. Finally, when considering the performance of the CEC and the challenges they face, we have deliberately sought to refrain from entering into wider debates; our focus is limited to the role of the CEC. We do not, for instance, make any wider conclusions or recommendations about the development of marine renewable energy. Nor do we seek to revisit the devolution settlement, although we do look at the CEC's working relationship with the Scottish Government.

The nature of the Crown Estate Commissioners

8. As we started to receive evidence and advice during the course of this inquiry, it soon became clear that our first major task would be to arrive at a clearer understanding of the nature of the CEC, including an appreciation of what is meant by 'the Crown Estate.' Several submissions were keen to draw our attention to the unusual nature of this organisation. Mr Andy Wightman, a freelance writer and researcher on land issues in Scotland, observed that "the Crown Estate is an oft misunderstood term";[5] Mr Tom Appleby, a senior lecturer in law at the University of the West of England, drew attention to "the quirky nature of the estate";[6] and HM Treasury too told us that "it is important to bring out the unique position of The Crown Estate."[7]

9. It is, perhaps, a measure of how hard it is to get a handle on the organisation, that a number of our witnesses took time to explain to us what the CEC—and the Crown Estate—were not. Mr Appleby told us that "it is tempting to treat the Crown Estate as a sovereign wealth fund, but to do so is a mistake."[8] In its written evidence, HM Treasury informed us that "while it is part of the public sector, it is not government property. Nor is it part of the monarch's private estate [ ... ]. This puts TCE in a different position to that of a non-departmental public body (NDPB)."[9] The CEC themselves were similarly keen to assert, in written evidence, that the Crown Estate "is not the Sovereign's private estate, nor is it owned by the Government" and that they are "not a government agency, nor a non-departmental public body, nor a company owned by the Government."[10] Chief Executive Mr Bright further commented during his oral evidence session that "with respect, we are not a government organisation."[11]

10. HM Treasury stated that "the Estate is part of the hereditary possessions of the sovereign; while its income forms part of Her hereditary revenues and is paid direct into the Consolidated Fund";[12] the CEC explained that they exercise "the powers of ownership, although we are not owners in our own right."[13] This quote does provide some greater clarity as many of the submissions we received thought the CEC were the owners of the Crown Estate rather than the managers of it. However, these formal definitions provide little understanding of what the CEC do and why, and tend to obscure the fact that the CEC are a public body charged with managing public resources for public benefits. In the following paragraphs, we look to explore these questions in more detail. Indeed, given the unusual nature of the CEC organisation, we recommend that the CEC produce a short statement in future Annual Reports, clarifying the nature of their organisation, its duties and the resources they manage.

The Committee on Crown Lands

11. The modern origins[14] of the CEC and the Crown Estate can be traced back to the Committee on Crown Lands appointed by the Government of the day in December 1954 to "examine the present organisation for the administration of Crown Lands and to report whether any change should be made."[15] The Committee reported in June 1955 and its recommendations were subsequently given effect in two pieces of legislation—the Crown Estate Act 1956 and the, still extant, Crown Estate Act 1961. It is a mark of the continuing relevance of the 1955 Committee's recommendations that the 2009 CEC Annual Report refers in its Governance Report, when interpreting the role of the CEC's Commissioners, to the "recommendations of the Report of the Committee on Crown Lands which visualised the role of The Crown Estate Commissioners as analogous to that of trustees of a trust fund."[16]

12. At the time, the Crown Lands were administered by the Commissioners of Crown Lands under three Commissioners: the Minister of Agriculture, the Secretary of State for Scotland, and, an administrative civil servant. In practice, as the Report noted with concern, the civil servant had been left 'out on a limb' "with a wide and lonely responsibility."[17] The report considered that "in effect Crown Lands are a trust estate, of which the capital belongs to the Sovereign. The income after meeting costs of upkeep has been surrendered to Parliament at the beginning of each reign since that of King George III, in accordance with a Civil List Act"[18] and that, in sum, "the Crown Estate is the Sovereign's public estate by right of the Crown and when Parliament assumed responsibility for providing funds for the upkeep of the Royal household as well as for the expenses of Government the surrender of the revenue for the lifetime of the Sovereign was regarded as a corollary."[19] The Report also described the Crown Lands as "one of the largest, most varied and most valuable holdings of landed property in Great Britain."[20]

13. The main recommendations of the Committee on Crown Lands were that:

The term "Crown Lands" was confusing, given that they were different from land acquired and maintained by the Government for various uses such as bombing ranges, airfields, the erection of government offices and other public purposes. To avoid ambiguity, the Crown Lands should, in future, be called "the Crown Estate".
To improve the administration of the Crown Estate, the Commissioners of Crown Lands should be replaced by an appointed Board along the lines of other large estates. The Report mentioned by way of example the Forestry Commissioners as a Board created by statute for the management of large areas of land owned by the Government.
A specified Minister or Ministers of the Crown—possibly including the Secretary of State for Scotland as "Scotland's Minister"—should have power to give directions to the Board. The Report recommended that the Board be consulted before the powers of direction were exercised. It also recommended that the responsible Minister should not have a special interest as Minister in the use or control of the Crown Estate.
The general duties of the Commissioners, only inferred and tacitly understood, should be defined and written into statute. The Crown Estate Act 1961 subsequently stated that:

it shall be the general duty of the Commissioners, while maintaining the Crown Estate as an estate in land (with such proportion of cash or investments as seems to them to be required for the discharge of their functions), to maintain and enhance its value and the return obtained from it, but with due regard to the requirements of good management.

The Crown Estate today

14. The Crown Estate Act 1961 defines the Crown Estate as the Crown property, rights and interests managed by the CEC on behalf of the Crown. The actual composition of the Crown Estate continues to evolve in line with the general duty of the CEC to maintain the Crown Estate "as an estate in land", which restricts the type of assets the CEC can hold as part of the Estate to land, gilts or cash, and to "enhance its value and the revenue obtained from it."As Chief Executive Roger Bright observed "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."[21] The CEC are required under the Crown Estate Act 1961 to retain the Royal Park and Forest at Windsor. There is no other requirement on the CEC to hold onto particular assets in perpetuity.

15. Legislation[22] since the Crown Estate Act 1961 to extend the UK's interests in the marine environment from the three nautical miles territorial limits at the time, has also consequently expanded the domain of the Crown Estate. The CEC are now responsible for managing the Crown's ownership of virtually the entire UK seabed out to the 12 nautical miles territorial limits and for managing the rights vested in the Crown over the UK continental shelf areas out to the 200 nautical miles limits. We shall examine this 'new' area of CEC business in more detail in a later section.

16. At our request, the CEC provided us with a schedule of the property, rights and interests that currently form part of the Crown Estate. The schedule is attached as an Appendix. The schedule helpfully distinguishes between ancient possessions which are properties held by the Crown when the first of the Crown Estate Commissioners' predecessors was set up in the early nineteenth century, and modern acquisitions, which are properties that have been acquired since then. The schedule also identifies that, in addition to properties, the Crown Estate also includes ancient rights of the Crown. Prominent examples of these are the Crown's rights to gold and silver and the Crown's ownership of territorial seabed and other rights in the UK's marine environment, the latter subsequently expanded as noted above. A further distinction is that the property, rights and interests that make up the Crown Estate in Scotland are legally distinct from those in the rest of the UK. The CEC's role and relationships in Scotland are considered in more detail in section 8.

17. The schedule of property rights and interests that currently form part of the Crown Estate is a considerable aid to understanding the nature of the CEC's operations. In the interests of transparency, therefore, we recommend that, in future, the CEC update the schedule on an annual basis, and publish it in each Annual Report.

The Crown Estate Commissioners today

18. The CEC continue to operate—within the framework recommended by the Committee on Crown Lands as enacted under the 1961 Crown Estate Act—as a statutory corporation managed by a Board of eight Commissioners appointed in line with current standards for public appointments. In their evidence to us, the CEC were very clear on the implications of the Crown Estate Act 1961 for the nature of their operations. In their written evidence, referring to their general duty under the Act to "maintain and enhance" the value of the estate and return obtained from it, they stressed that they are "a business that focuses on a combination of income return and capital growth"[23] and that they are "first and foremost a commercial organisation."[24] Similarly, in oral evidence, their Chief Executive explained that "we operate under a commercial remit which is set out in the 1961 Crown Estate Act."[25]

19. This though is not the whole story. Under the terms of the Act, the CEC have also to pay "due regard to the requirements of good management". However, as Mr Appleby pointed out to us "there is no strict legal definition of good management. As a result interpretation is left to plain English and common practice to establish."[26] At one level, "good management" may be seen as no more than standards that all organisations should observe to ensure that their operations are sustainable in the longer-term—a limited stewardship role—and managed in a professional manner. As the CEC put it in their written evidence:

HM Treasury appears similarly content with this interpretation of good management, stating in its written evidence that:

20. We questioned to what extent standards of good management for the CEC as a public body also involved wider public interests. Mr Roger Bright gave some acknowledgment that wider interests were at stake when he sought to reassure us that:

We also noted that the CEC's duty is to enhance value and revenue, rather than maximise them as supposed in some of the evidence we received. We consider that there is a distinction between 'enhance' and 'maximise'—ie that enhance is less than maximise— which may give the CEC more scope to accommodate wider public interests in fulfilling their financial remit. We return to this matter later.

21. Questions of the wider public interest also involve the powers of direction held under the Crown Estate Act 1961 by the Chancellor of the Exchequer and the Secretary of State for Scotland. The CEC pointed out in their evidence that these powers had never been used, while both HM Treasury and CEC were anxious to reassure us that the reason the powers have not been used is because "there is always active dialogue among officials about any significant or novel developments in the business before they are undertaken" and hence "the question of exercising the powers of direction has never arisen."[30] Conversely, however, this may be an indication that the CEC have, over time, been allowed a greater level of autonomy than originally envisaged by the Committee on Crown Lands.

22. The extent to which the CEC's revenue and capital enhancing activities are or should be tempered by the requirements of good management or guided by Ministerial direction is important because a number of witnesses and submissions contend that the degree to which the CEC are focused on their commercial duties can, in some contexts, act against wider public interests. We explore these arguments more fully in the Urban Estate and Marine Estate sections, before considering in section 9 whether there may be wider policy issues for the Government to consider.

Financial rules

23. In addition to the issue of the extent to which the requirement on the CEC to enhance value and revenue may be influenced by good management and Ministerial direction, there are specific financial rules governing the CEC's operations. One is that the CEC have to surrender their net revenue surplus to the Treasury each year, and are therefore unable to use revenue for capital investment except in limited circumstances. The CEC are also unable to borrow to finance investment, or invest in land through limited companies.

24. Another statutory constraint upon the CEC is the requirement that they do not exploit monopoly positions. This issue is considered more closely in the section on the Marine Estate, as it is in the marine environment that their monopoly position features most prominently.

25. Having explored the framework within which the CEC operate, in the next sections we turn our attention to the performance of the CEC, looking first at overall performance, and then at performance in its individual business divisions. As stated in their Annual Report, these operating divisions are the basis upon which the CEC monitors their operations and upon which decisions are made by the Board.

4 The Crown Estate, Annual Report 2009, July 2009, Overview Back

5 Ev 37 Back

6 Ev 70 Back

7 Ev 101 Back

8 Ev 70 Back

9 Ev 101 Back

10 Ev 39 Back

11 Q 173 Back

12 Ev 101 Back

13 Q 130 Back

14 An annex to the Report of the Committee on Crown Lands, Cmd 9483, June 1955,also provides a wider historical perspective Back

15 Report of the Committee on Crown Lands, Cmd 9483, June 1955 Back