The management of the Crown Estate - Treasury Contents

Written evidence submitted by The Crown Estate (Crown Estate Commissioners)


  The Crown Estate is part of the hereditary possessions of the Sovereign in right of the Crown. It is not the Sovereign's private estate, nor is it owned by the Government.

  The Board of The Crown Estate is charged with managing these property interests, comprising a diverse portfolio across the UK of over 12,000 tenancies. It includes office, retail and industrial premises; housing; farmland, forestry and minerals; parkland; over half the foreshore and almost all the seabed.

The Crown Estate is required to enhance the value of the portfolio and its income, and to surrender the profit to the Treasury to the benefit of the taxpayer. The Crown Estate sets clear commercial objectives and financial targets, acting as a responsible long-term steward of its assets.

  Over the last 10 years, the value of the portfolio has increased by £2.3 billion and The Crown Estate has paid a total of £1.8 billion to the Treasury. Over the same period The Crown Estate has significantly outperformed the IPD (Investment Property Databank) all property index, the property industry's recognised benchmark. The diversity and quality of the portfolio have helped The Crown Estate weather the recession.

  The overall strategy is to concentrate on core holdings and areas of expertise. While the major assets in London's Regent Street and St James's will remain significant, the objective is to build a more balanced portfolio with investment in higher yielding assets elsewhere. The Marine Estate will play an increasing part in this as it continues to facilitate the development of offshore renewable energy.

  Stewardship is an integral part of The Crown Estate's commercial strategy. This benefits both the business and the communities and environments in which it operates. Success is more than annual financial performance: it is also important to maintain assets of a quality to provide a sustainable return over the longer term. The Crown Estate is committed to a policy of accountability and transparency and publishes material in a variety of formats to help interested observers understand the business.

  The Crown Estate discusses annually with the Treasury the proposed corporate plan, financial targets and investment strategy, keeping officials regularly informed of its business and other significant initiatives. The Crown Estate also works with other government departments and devolved administrations, particularly in relation to offshore energy.


  1.  The Crown Estate can trace its origins back several hundred years and is conscious of its long term responsibilities for its assets. It is charged by Parliament with responsibility for managing the property interests belonging to the Sovereign as part of the hereditary possessions of the Crown. It has four constituent Estates: urban, marine, rural and Windsor.

  2.  The Crown Estate's responsibilities are specified in The Crown Estate Act 1961 (the 1961 Act): in particular, to enhance the value of the estate and its income and to do this having regard to good management. The Crown Estate is therefore a business that focuses on a combination of income return and capital growth. Under the Civil List Act 1952, the net income surplus, ie profit, goes to the Treasury. The Crown Estate is not a government agency, nor a non-departmental public body, nor a company owned by the Government.

  3.  The Crown Estate expresses its statutory duties through three core values—commercialism, integrity and stewardship. It operates at arm's length from Government, takes a commercial approach and embraces high standards of responsible management.


  4.  At the end of the financial year 2008-09, the capital value of The Crown Estate was £6.0 billion of which the property portfolio was £5.7 billion. Over the 10 years to March 2009 the value of the property portfolio has increased by 66.7%. The following chart shows the property portfolio value of each of the constituent Estates.

  5.  The gross income surplus[1] for the financial year 2008-09 was £243.2 million. The following chart shows the gross income surplus contributed by each of the Estates.

  6.  The Crown Estate's total net income surplus,[2] ie profit, is all payable to the Treasury: The Crown Estate is not subject to corporation, income or capital gains tax. In 2008-09 the surplus was £226.5 million. The following chart shows that the surplus grew by 70.5% for the 10 years from 1999-2000 to 2008-09—with total payments of £1.8 billion to the Treasury, to the benefit of the taxpayer.


  7.  Consistent with industry practice, The Crown Estate compares its total return (income return plus capital growth) with the IPD all property index. The following chart shows how The Crown Estate's total return performance compares with this index in each of the last five years.

  8.  The following table shows total return performance against the IPD index over the last three, five and 10 years.

Annualised Total Return %
3 yr
5 yr
10 yr

The Crown Estate
IPD Quarterly Index

  For 2008-09, The Crown Estate's total return was -15.8, outperforming the IPD Quarterly Index which reported a return of -25.5%.

  9.  In addition to benchmarking financial performance, The Crown Estate will this year benchmark itself against the Business in the Community (BitC) Corporate Responsibility Index, aiming for "silver" status and, by 2014, "gold".


  10.  By law, The Crown Estate's operations are limited in certain crucial ways:

    — it is unable to borrow to finance investment;

    — it is unable to retain revenue reserves for investment because the whole of its income surplus is payable to the Treasury; and

    — it is unable to invest in land through limited companies.

  11.  Because of the first two constraints, funds for capital investment have to be generated from capital activity; through partnering and joint ventures; or through transfers from revenue to capital in limited circumstances, as permitted under the 1961 Act. The consequence of the third constraint is to restrict the opportunities for accessing modern investment vehicles.


  12.  The governance structure of The Crown Estate comprises a non-executive Main Board and an executive Management Board. The Main Board consists of a non-executive chairman, six non-executive members and the chief executive, all of whom have property or other relevant experience or expertise. The Main Board:

    — agrees the objectives and strategy of The Crown Estate;

    — ensures that there are effective systems of financial delegation and control and risk management;

    — monitors performance in meeting objectives and implementing strategy;

    — monitors financial performance and stewardship of resources; and

    — approves major transactions.

  13.  The Management Board, comprising the chief executive and the five executive directors:

    — implements the strategic direction of The Crown Estate;

    — sets and ensures the achievement of corporate objectives, including financial performance;

    — keeps under review The Crown Estate's investment strategy, in the light of economic and market conditions;

    — ensures that business risks are properly identified and managed;

    — exercises oversight and control over The Crown Estate's financial, human and other resources; and

    — promotes sustainability and customer focus throughout the business.

  14.  The chief executive, as accounting officer, is responsible for regularity and propriety in the deployment of The Crown Estate's resources.

  15.  The Crown Estate adopts a balanced scorecard approach to measuring both financial and non-financial performance against corporate objectives. These have been distilled into nine rolling five year "Going for Gold" targets which are monitored and reviewed regularly. Progress is communicated to all staff.

  16.  The Crown Estate outsources day-to-day management of the majority of its property portfolio to professional firms of property managing agents, with the in-house team focusing on investment strategy and its implementation; asset management; and property development. The total fees paid to managing agents in 2008-09 for property management were £9.0 million.

  17.  At 31 March 2009, The Crown Estate's core business employed 184 people on a permanent basis: managers, their supporting teams and central services staff. Additionally, 207 staff were employed in estate work, primarily at Windsor.

  18.  The total costs of The Crown Estate in 2008-09 were £80.4 million, representing 26.4% of turnover. This consisted of direct expenditure on the Estates of £60.9 million, (such as service charges, which are recoverable from tenants, managing agents' fees, repairs, provision for bad debt, etc); indirect expenditure of £17.0 million (such as employees, accommodation and IT); and depreciation of £2.5 million.


  19.  The Crown Estate is audited by the National Audit Office. In accordance with the 1961 Act, a clear distinction between income and capital has to be maintained, similar to a trust. This is reflected in the annual report.

  20.  In 2008-09, The Crown Estate adopted International Financial Reporting Standards (IFRS) a year ahead of other public sector organisations.

  21.  The Annual Report is laid before Parliament and gives a comprehensive account of The Crown Estate's activities. Annual reports are also produced for Scotland, Wales and Northern Ireland. The 2009 Annual Report won two "Building Public Trust" awards: one for "Excellence in Reporting" in the Public Sector and one for "Sustainability Reporting" in the Public Sector.

  22.  The Crown Estate recognises the importance of employing high standards of governance in performing its obligations, including compliance, where applicable, with the Treasury's corporate governance guidelines.


  23.  In accordance with the 1961 Act, The Crown Estate provides the Treasury with all the information about The Crown Estate's activities which the Treasury requires. The Treasury is kept regularly informed of The Crown Estate's business and significant initiatives to enable the Treasury to satisfy itself that the Estate is performing its duties. There are two formal annual meetings with officials; in the spring on the corporate plan and revenue targets; and in the autumn on the investment strategy, with additional meetings and discussion as the flow of business requires throughout the year. The 1961 Act also confers on the Treasury and the Secretary of State for Scotland a power of direction over the discharge of The Crown Estate's functions but to date this has not been exercised.

  24.  The Crown Estate also has extensive working relationships with other UK government departments (DECC, DEFRA, BIS, DCLG and DfT) and with a range of government committees and taskforces on subjects including energy, marine environmental management, fisheries and minerals. In many cases there is detailed bilateral collaboration in the sharing of expertise and knowledge, eg constructing the strategic environmental assessment for the current offshore wind farm programme.

  25.  As offshore renewable energy is a devolved responsibility, The Crown Estate also has comparable relationships with the Scottish Government. There are parallel relationships with the Welsh Assembly Government and the Northern Ireland Executive.


  26.  In order to enhance the long-term value of the portfolio whilst providing a sustainable source of revenue to the Treasury, The Crown Estate's strategy is to:

    — concentrate on key areas of expertise and capitalise on opportunities for specialisation;

    — rebalance the portfolio to moderate its current high dependence on central London towards higher yielding investments elsewhere, including playing a full part in realising the potential of the Marine Estate; and

    — broaden access to working capital through joint ventures and partnering with others.

  27.  Within this overall strategy, the priorities of the different Estates reflect the nature of their business. The priority of the Urban Estate is essentially to provide a mixture of long-term capital and income growth. The Marine Estate's priority is to produce a return driven primarily by income rather than capital gain. The Rural Estate's priority is to maximise total returns through capital growth combined with appropriate levels of capital release and increased income. In the case of the Windsor Estate, there are specific duties laid down by the 1961 Act. The following sections explain this in more detail.


  28.  The Urban Estate represents 74% of the property value of The Crown Estate and generates a similar proportion of the gross income surplus. It comprises commercial and residential property and is one of the largest commercial property portfolios in London.

  29.  The overall objective is to concentrate on a limited number of sectors where we have a competitive advantage, for example through concentrated ownership of assets, expertise or local knowledge. Our relative success is due to the quality of the portfolio and a continued focus on long-term opportunities.

  30.  Regent Street is the most significant part by value of The Crown Estate. The Crown Estate has taken advantage of its contiguous ownership of the Street and over recent years has transformed it into a world class retail and business location. A major development—the largest mixed-use scheme in the West End, the Quadrant,—is currently underway at the southern end of Regent Street comprising offices, a five star hotel, residential and retail accommodation. This will incorporate energy-efficient and environmentally-friendly technology for generating cooling, heat and power. It will also provide the most significant improvement to the quality of London's West End public space since the enhancement of Trafalgar Square.


  31.  Overall the principal challenges facing the Urban Estate are:

    — high dependence on the volatile central London office market;

    — limited access to working capital, restricting the ability to invest; and

    — managing the increased risk of tenant failure as businesses struggle during the economic downturn.

  32.  Our response is to reduce our exposure to commercial central London property by strategic disposals of non-core central London holdings and through working with partners in our core holdings. This enables us to spread our risk and access additional sources of investment capital, while retaining a significant element of control over our core holdings in Regent Street and St James's, where we intend to remain major investors. A substantial part of the funds raised from disposals is being invested outside London, in major retail schemes and industrial estates. To manage and mitigate the risk of tenant failure we are increasing our knowledge of occupiers' businesses and, wherever possible, working closely with them to understand their requirements and improve their occupational efficiency.

  33.  Over the last year, we took advantage of the market downturn to continue to rebalance and diversify our portfolio, resulting in sales and purchases with a combined value of more than £500 million from April 2009. Significant transactions included sales of non-core central London assets and the acquisition of major retail schemes in Exeter and Harlow. We also continued the active asset management of our core central London holdings including the Quadrant development.


  34.  The property under the management of the Marine Estate includes virtually the entire UK seabed out to the 12 nautical mile territorial limit, plus the vested rights to explore and utilise natural resources of the UK Continental Shelf which extends to 200 miles from the coast. These rights include the sub-soil, minerals and substrata below the surface of the foreshore and seabed, but excludes oil, gas and coal. In effect, the Marine Estate manages approximately 20,000 km of the UK's total 36,000 km coastline and approximately 880,000 km2 of seabed. The Crown Estate does not own the water column or govern public rights such as navigation and fishery over tidal waters.

  35.  The objective of the Marine Estate is to seek a financial return from the land and property rights under its management whilst placing emphasis on long term stewardship responsibilities and sustainable development of the marine environment. The Crown Estate works closely with government, devolved administrations, local authorities, seabed users and developers, environmental groups and other stakeholders and interest groups.

  36.  The Marine Estate undertakes or facilitates a diverse range of commercial activities both coastal and offshore. These include: offshore renewable energy and undersea storage of natural gas and carbon dioxide; marine aggregate extraction; submarine cables, pipelines and outfalls; marinas and moorings, port and harbour operations and navigational aids; and mariculture—seaweed harvesting, shellfish cultivation and fish farms.

  37.  In addition we undertake or facilitate ancillary activities relating to our stewardship role to enhance long-term value. These include: the leasing of about 5,000 km of the UK's coastline to local authorities and other agencies for conservation and preservation; aquaculture research; environmental research; conservation projects and nature reserves; marine archaeological investigations; and public education and interpretation of the marine environment.


  38.  Under the Energy Act 2004 The Crown Estate licenses the generation of renewable energy on the continental shelf within the Renewable Energy Zone out to 200 nautical miles. The government's target for meeting 25% of the UK's electricity generating capacity from renewable sources by 2020, for reasons both of climate change and energy security, has therefore created new opportunities for The Crown Estate. Its ownership and vested rights for the seabed around the UK makes The Crown Estate uniquely placed to work with government in helping to meet these targets.

  39.  Under the Energy Act 2008, The Crown Estate also has the right to lease undersea storage of gas and carbon dioxide. Carbon capture and storage (CCS) in the UK sea bed could become important in helping to underpin energy security.


  40.  This substantial offshore renewable energy programme presents significant challenges to the UK. The Crown Estate, by virtue of its ownership and vested rights, is responding in the following ways:

    — helping facilitate the establishment of a robust framework to provide confidence for investors and developers to participate in the next phase of the offshore wind energy programme (Round 3), the wave and tidal programme in the Pentland Firth and the offshore wind farm programme in Scottish territorial waters. It is making available £123 million of capital to bring sites under these programmes to the point where they can be developed. On 8 January 2010, The Crown Estate and Government announced the developers for nine new offshore wind zones with a total target capacity of 32 gigawatts. The aim is for legal agreements with developers in the Pentland Firth to be signed by 31 March 2010;

    — helping facilitate the establishment of offshore transmission networks for electricity distribution and working closely with the National Grid, OFGEM and DECC; and

    — working alongside the UK Government and regulators to establish a robust licensing and leasing programme for the first CCS projects, in the absence of a clear market mechanism for pricing carbon dioxide.

  41.  In light of these new activities the Marine Estate has invested in appropriate systems and processes and recruited additional qualified and experienced people from relevant sectors.


  42.  The Rural Estate is one of the largest commercial rural land holdings in the UK and comprises 146,000 hectares (360,000 acres) of agricultural and common land, forestry, residential and commercial property and minerals. The agricultural sector comprises 450 principal farm holdings and 770 residential tenancies.

  43.  The principal commercial objectives of the Rural Estate are to enhance income growth; create value through asset management; and to re-balance the portfolio for long-term performance, releasing capital where appropriate. Sales are focused on peripheral land and property with limited long-term prospects. Purchases, such as the Ashby St Ledgers Estate in Northamptonshire and the Tabley Estate in Cheshire, both mixed estates with agricultural, residential and commercial assets, are selected for their long-term potential.

  44.  This approach is coupled with high standards of stewardship which we believe enhances long-term value. We work in partnership with tenants to help them achieve their own business objectives, and involve other stakeholders to achieve high standards of sustainability. The Crown Estate seeks to be recognised as a landowner with a reputation for fair and environmentally responsible business practices.


  45.  The principal challenges are:

    — the characteristics of agricultural investment mean there is restricted scope for tactical trading of the portfolio;

    — the scope for maximising income is limited by the legislation governing agricultural tenancies; and

    — releasing land for development in ways that are sensitive to local opinion and environmental concerns.

  46.  To address these challenges, we ensure we are in a position to realise profits when opportunities arise. Additionally, we are working more closely with our tenants to add value to their businesses and create new opportunities to our mutual benefit. Examples of this include the help we have given our farming tenants to develop ancillary businesses by stimulating tourism on the Glenlivet Estate in the Highlands and on the Dunster Estate on the edge of Exmoor.

  47.  To achieve successful development of surplus land The Crown Estate places priority on extensive stakeholder consultation and on employing high standards of design and construction to benefit individual occupiers and secure sustainable local communities. Examples range from a large-scale business and technology park at Butterfield in Bedfordshire to a small-scale village development at Burnhill Green in Staffordshire. The development of a Crown Estate quality standard for residential property is designed to add value to our housing stock.

  48.  Drawing on the expertise of our Marine Estate team, a scoping study recently identified possible onshore renewable energy generation opportunities, with a total output potentially in excess of 500 megawatts. These could involve onshore wind, anaerobic digestion, biomass and hydro technology, which together with micro-generation will benefit individual farm tenants and local communities.

  49.  As part of our stewardship programme, we reached, a year ahead of schedule, the government target that 95% of our 145 Sites of Special Scientific Interest in "favourable" or "recovering" condition.


  50.  The Windsor Estate covers 6,300 hectares (15,600 acres) of the Surrey and Berkshire countryside. It includes Windsor Great Park, farms, forests and residential and commercial properties. Key features include the Savill and Valley Gardens, Virginia Water Lake, Cumberland Lodge (a conference facility), the Long Walk and deer park, six golf courses and Ascot Racecourse. Windsor Castle is an occupied Royal Palace and therefore not in Crown Estate ownership.

  51.  The 1961 Act requires The Crown Estate to maintain the character of the Windsor Estate as a Royal Park and forest. Subject to that requirement, the Act allows use of the Estate for commercial purposes and access to the public for recreation.

  52.  Our objectives are therefore to ensure that the Windsor Estate remains a valuable historic, national asset; to maintain and improve the stewardship of the Estate; and to enable millions of people to make use of the various facilities.

  53.  The challenge is to ensure that as far as possible we offset the costs of complying with our statutory obligation to maintain the Windsor Estate by identifying and maximising sources of revenue. The cost of maintaining the Windsor Estate in 2008-09 was £8.3 million which was offset by revenue of £6.3 million from commercial and residential property, agriculture, visitor revenue, the sale of timber and Christmas trees and filming on the Estate.


  54.  The Crown Estate is first and foremost a commercial organisation. The diversity of its portfolio spreads risk and provides commercial benefit. The Crown Estate is engaged in issues of major importance—urban development, offshore energy generation and sustainability in the rural economy. Recognising the potential of the assets under our control, we manage them actively and with a long-term perspective.

January 2010

1   Turnover less operating costs which include management fees and repairs and maintenance. Back

2   Gross surplus plus interest receivable, less administrative costs and appropriations to capital. Back

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