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The management of the Crown Estate - Treasury Contents


113. The more we have looked at CEC activity within its individual business divisions, the more we found ourselves asking a larger question—what 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 areas—such as for instance retail property in central London and elsewhere—their management of the Crown Estate along professional, commercial lines is appropriate and is producing commendable results. However, in other areas—such as their management of affordable and key worker housing and aspects of their role in the marine environment—we 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 aims.

Good management

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 their remit.[182]

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.[183]

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 departments—HM Treasury and the Scotland Office—both 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."[184] 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"[185] and that "the Crown Estate are managed at arm's length"[186] Similarly, in its response to the Calman Report, the Scotland Office was only interested in engaging in important matters as they arise.

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."[187] 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 public interests.

Wider Review

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."[188] 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 2007—the Gibraltar Limited Partnership—which 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 limitation—quite a severe limitation—on the extent to which implied borrowing could take place. [189]

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."[190]

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."[191] 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."[192] 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][193]. It was a useful experience."[194] 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 field.[195]

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 [ ...][196]

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, that—over 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 area.

Other scrutiny

129. Finally, 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

183   Q 150 Back

184   Ev 101 Back

185   Oral evidence taken before the Treasury Committee on 8 December 2009, HC (2009-10) 156, Q 521  Back

186   Ibid., Q 526 Back

187   Scotland Office, Scotland's future in the UK: building on ten years of Scottish devolution, Cm 7738, November 2009, p 28 Back

188   Q 249 Back

189   Q 276 Back

190   Q 277 Back

191   The Crown Estate, Annual Report 2009, July 2009, p 76 Back

192   Q 140 Back

193   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

194   Q 141 Back

195   Q 143 Back

196   Q 138 Back

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