9 THE WIDER PUBLIC INTEREST
113. The more we have looked at CEC activity within
its individual business divisions, the more we found ourselves
asking a larger questionwhat exactly should the CEC do?
It is clear that the CEC see themselves primarily as a well-managed,
commercial business organisation. Other stakeholders, however,
want the CEC to give greater prominence to wider public interests
and act more as if they were a government agency. In truth, the
CEC are neither of these. In many areassuch as for instance
retail property in central London and elsewheretheir management
of the Crown Estate along professional, commercial lines is appropriate
and is producing commendable results. However, in other areassuch
as their management of affordable and key worker housing and aspects
of their role in the marine environmentwe believe that
the CEC could align its policies more with wider public interests.
Left alone, the CEC will be cautious about how much weight they
place on wider public interest considerations, not least because
of their concerns over the extent that they are constrained by
the term of the Crown Estate Act 1961. We turn our attention
now, therefore, to the flexibility in the Act and the Government's
oversight role, and consider whether Ministers should take the
opportunity to align the CEC's operations better with wider public
114. We asked Sarah McCarthy-Fry MP, the Exchequer
Secretary of the Treasury, about the extent to which the Government
considered the CEC might be able to help deliver wider public
interests while fulfilling their duty to maintain and enhance
the value of the Crown Estate and the return obtained from it
to public funds. The following oral evidence exchange makes the
Government's opinion quite clear:
Chairman: So you are not specifically interested
in how they might meet wider public policy objectives of the Government?
Sarah McCarthy-Fry: I do not believe it is in
We consider that the CEC has more flexibility to
accommodate such interests than the Government appears to realise.
We note, first, that the CEC's remit in the 1961 Act to increase
value and revenue is subject to giving "due regard to the
requirements of good management". As discussed in previous
sections and acknowledged by the CEC, the standards of good management
for the CEC as a public body go beyond those of the private sector.
The question is the extent to which other public interests can
or should be accommodated as part of the CEC fulfilling its financial
remit. There is, for example, no requirement in the Act for the
CEC to maximise the value of the Crown Estate or of the
return obtained from it. The requirement to enhance value and
revenue is also for the overall Estate, not in every instance.
While Section 3(1) of the Act does oblige the CEC to secure "the
best consideration in money or money's worth which in their opinion
can reasonably be obtained" in their transactions, this
is followed by "having regard to all the circumstances
of the case, but excluding any element of monopoly value attributable
to the extent of the Crown's ownership of comparable land
[our italics]". Section 3(6) and Section 4 are other provisions
in the Act that also give the CEC discretion in deciding the "best
consideration" in particular situations.
115. The issue between the CEC's financial remit
and taking account of other public interests comes into sharp
focus in the marine environment where, as Mr Bright put it:
There is a need for us to make sure that we are
not doing anything other than supporting the achievement of government
policy in this instance, but also we are realising a return from
our assets which is our statutory duty.
What though is a reasonable rate of return in these
circumstances? During the course of our inquiry, many concerns
were raised with us about the level of the CEC's charges, including
concerns about their impact on public policy goals. We consider
next whether the Government should play a stronger role in assisting
the CEC to strike the most appropriate balance between raising
revenue for public funds and supporting wider public interests.
Government's relationship with
the Crown Estate Commissioners today
116. As we have seen in previous sections, the two
lead Government departmentsHM Treasury and the Scotland
Officeboth take a fairly narrow view of their responsibilities
in relation to the CEC. In written evidence, HM Treasury told
us it had "limited powers of oversight" and observed
that "it is rarely necessary to trouble Treasury Ministers
with matters involving TCE's management in the round."
In oral evidence to a previous inquiry the Exchequer Secretary
told us that the CEC's remit was simply "to deliver best
value for the taxpayer"
and that "the Crown Estate are managed at arm's length"
Similarly, in its response to the Calman Report, the Scotland
Office was only interested in engaging in important matters as
117. We were struck by the extent to which dialogue
between Government and the CEC takes place at official level,
and how seldom officials appear to see a need to engage Ministers
subsequently. We consider that, particularly in the marine
environment where there are a number of substantive issues at
stake, Ministers should take a greater interest in the CEC.
Powers of direction
118. The Crown Estate Act 1961 granted powers of
direction over the CEC to the Chancellor of the Exchequer and
the Secretary of State for Scotland. Section 4 states that:
The Commissioners shall comply with such directions
as to the discharge of their functions under this Act as may be
given to them in writing by the Chancellor of the Exchequer or
the Secretary of State.
However, the section also states that "in giving
powers of direction", Ministers:
shall have regard to subsection (3)the
general duty of the Commissioners to maintain and enhance revenue
and value with due regard to the requirements of good management.
There is a legitimate debate to be had, therefore,
about the scope of the powers of direction.
119. In supplementary written evidence to us, HM
Treasury claimed that "the Act clearly expects the power
to be used exceptionally, and only within the requirements of
subsection (3)." The Scotland Office's response to the Calman
Commission Report similarly asserts that the powers of direction
are "a reserve power for use in extreme circumstances never
used...a sanction of last resort."
In oral evidence, the Exchequer Secretary told us that she could
only really apply powers of direction where the CEC was clearly
acting outside the terms of the Crown Estate Act 1961. She did
not see them as strategic powers that might also serve to help
the CEC to interpret their remit in the light of changing circumstances.
120. We discussed the powers of direction with Speaker's
Counsel. As a matter of construction, we consider there is nothing
in the Act to indicate that the powers of direction are only to
be used in exceptional circumstances. Even though they have never
been used, they are not necessarily a nuclear option. It is also
evident on the face of the statute that it cannot have been intended
that the power was intended to be limited to directing the CEC
to abide by the Act. If that were the limit of the power, there
would have been no reason to make provision in s.1(4) for the
possibility that a direction might conflict with the duty under
s.1(3) by noting the need that any directions must "have
regard to" that duty.
The way ahead
121. We consider that the Government has more scope
to provide advice and, if necessary, direction than it appears
to realise. We accept that the CEC are not a Government agency
and do not require comparable political direction. However, given
that there is a balance to be struck, and that there are exceptional
circumstances in the marine environment arising from the need
to develop new industries and help ensure that some of the benefits
are felt by local communities, we consider that the Government
does have a locus to provide stronger guidance to assist the CEC
at this time. The issue is not whether the CEC depart from their
statutory obligations, but rather that, with the Government's
help, they should seek to interpret them in a manner which is
more sympathetic to wider public interests. This rebalancing exercise
may well be achievable without reference to powers of direction.
However, with a new endeavour on the scale of marine renewable
energy and where the government has clearly stated strategic policy
objectives, a formal direction from ministers could provide a
useful framework for the CEC. If such a formal power of direction
were seen to be helpful by the CEC and/or the Government, we consider
that the powers of direction are sufficiently broad to enable
the Government to guide the CEC to re-balance its general approach
to encompass more issues of wider public interest.
122. We urge the Government to provide a policy
steer to the CEC in areas where they have the potential to realise
wider public benefits in addition to their core financial task.
Subject to the review we recommend, these wider public benefits
should be clarified and either the CEC should be directed to perform
to that interest or those assets should be managed through other
agencies aligned with those interests. Either the Government or
the CEC might want this to be done by use of the powers of direction.
In this context, powers of direction should not be seen as a criticism
of the CEC, but rather as good examples of Government influencing
overall policy, as provided for by the Act, and envisioned by
the Report of the Committee on Crown Lands. We do not accept
that the Government is restricted by current statute from providing
strategic direction to the CEC to take greater account of wider
123. As we observed at the beginning of this report,
this has been a necessarily short inquiry, albeit one that has
thrown up more fundamental issues than we had originally anticipated.
We believe that, in the wider public interest, the Government
should take a more active role in its relationship with the CEC.
We are clear that there is sufficient flexibility within the current
framework for the CEC and Government to work more closely. That
said, as the Exchequer Secretary remarked to us, the Crown Estate
Act 1961 "is a very old Act."
There is also evidence that the CEC would welcome a review, at
least into the financial rules under which they currently operate,
and indeed are already pushing against their boundaries.
124. We noted in this context that the CEC have recently
started to invest in joint venture property partnerships. We
asked HM Treasury whether, given the restriction on borrowing,
this was permissible under the Crown Estate Act 1961. Ms Paula
Diggle, Treasury Officer of Accounts explained why she had approved
the first Joint Venture in 2007the Gibraltar Limited Partnershipwhich
has since encountered grave difficulties:
I looked into it very carefully with them. I
discussed it with my seniors in the office. We first of all check
that the vires existed. The vires say that it is proper for the
Crown Estate to make investments in land and property, and this
is actually an investment in a property asset. It happens to involve
incidental borrowing. I was troubled by the apparent but not real
conflict with the requirements of the Act. We therefore discussed
and voluntarily agreed a limitationquite a severe limitationon
the extent to which implied borrowing could take place. 
She was cautious, however, on committing herself
to approving similar ventures in future, answering that "I
would look at it very carefully on its merits at the time."
125. We put it to Mr Bright that the example of the
Gibraltar Limited Partnership was of concern. The 2009 CEC Annual
Report records, in relation to this joint venture, that "circumstances
give rise to material uncertainty that could cast significant
doubt upon the partnership's ability to continue as a going concern."
He replied that the Gibraltar Partnership was "very much
a toe in the water" and "an extremely small part"
of the CEC's overall portfolio with limits on the extent of the
gearing agreed with the Treasury. He accepted though that the
joint venture "had been a victim of market developments in
the last year or two."
In response to further questioning, he affirmed that "I think
we have learned the lessons of that and fortunately the exposure
here is pretty small [£18 million].
It was a useful experience."
He was also adamant that the purpose of the joint venture was
not to get round the borrowing rules, stating that "we are
quite clear that that would not be an appropriate use of such
vehicles". Rather, he explained, that:
The principal purpose was to gain exposure to
bigger assets than perhaps we would normally have been able to
acquire on our own but also to gain experience and draw on the
experience of other people who were more expert in this particular
126. We asked Mr Bright whether the Gibraltar
Partnership is allowed to borrow and he confirmed that it is.
We are alarmed by this, and by the Treasury's opinion that this
is 'implied borrowing.' We recommend that the Treasury review
whether the CEC's involvement in joint ventures is compatible
with the constraints on borrowing in the Crown Estate Act 1961.
127. The Chief Executive of the CEC told us that
the CEC would like to see the constraints on borrowing in the
Crown Estate Act 1961 eased:
[ ... ] 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 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 [
128. In the limited time available to us, we
have not been able to form a definitive view on whether the current
framework for the management of the Crown Estate remains entirely
appropriate in the light of changing circumstances particularly,
but not limited to, the marine environment. We recommend, therefore,
thatover 50 years after the last one the future
Government commission a wider review of the management of the
Crown Estate and the 1961 Act, and the level of Ministerial involvement
required. The review should also consider the case for clarifying
or relaxing the financial rules currently placed on the CEC, though
we would recommend that the Government proceed cautiously in this
we are convinced that our inquiry into the CEC's management of
the Crown Estate has been a useful one. Given
the extent of the CEC's contribution to the Consolidated Fund,
and the extent of their wider inter-actions in the urban, rural
and marine environments, we expect that our successor Committee
will want to consider the CEC's Annual Report as part of its regular
programme of scrutiny of the administration and expenditure of
the Chancellor's departments.
182 Q 230 Back
Q 150 Back
Ev 101 Back
Oral evidence taken before the Treasury Committee on 8 December
2009, HC (2009-10) 156, Q 521 Back
Ibid., Q 526 Back
Scotland Office, Scotland's future in the UK: building on ten
years of Scottish devolution, Cm 7738, November 2009, p 28 Back
Q 249 Back
Q 276 Back
Q 277 Back
The Crown Estate, Annual Report 2009, July 2009, p 76 Back
Q 140 Back
Ev 116 In supplementary evidence the CEC further explained that
the £18million was the sum, as at March 2009, they had voluntarily
placed on deposit to support the partnership's banking covenant
as the value of the investment declined. The deposit is returnable
once values recover and the banking covenant is being fulfilled.
It is therefore not irretrievable. Back
Q 141 Back
Q 143 Back
Q 138 Back