Evidence heard in Public

Questions 1 - 250



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Oral Evidence

Taken before the Public Accounts Committee

on Monday 15 July 2013

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Chris Heaton-Harris

Meg Hillier

Mr Stewart Jackson

Fiona Mactaggart

Austin Mitchell

Nick Smith

Justin Tomlinson

Amyas Morse, Comptroller and Auditor General, Gabrielle Cohen, Assistant Auditor General, Paul Keane, Director, National Audit Officer and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance.

Examination of Witnesses

Witnesses: William Nye, Principal Private Secretary to their Royal Highnesses the Prince of Wales and the Duchess of Cornwall, Keith Willis, Finance Director of the Duchy, and Paula Diggle, Treasury Officer of Accounts, HM Treasury, gave evidence.

Q1 Chair: Welcome. Let me start by saying it is not our job to make policy. We want to reflect on the current arrangements to see whether or not they reflect the reality of the world today. I really do not know the answer to this one, but I was thinking about it last night. We are waiting for the birth of the new baby to the Duke and Duchess of Cornwall. If the baby turns out to be a little girl, and if and when the Duke becomes the monarch, will that little girl become the Duchess of Cornwall?

William Nye: She will not become the Duchess of Cornwall under the present charter, as it is at the moment. I think you are referring to the Duke and Duchess of Cambridge’s child.

Q2 Chair: Absolutely. Thank you for correcting me. The reason I ask the question is that it brings me to the heart of what I am really interested in. The fact that were this little baby to be a girl, she would never become the Duchess of Cornwall demonstrates to me that there is a separation between the Duchy of Cornwall and the post holder, whoever is heir to the throne, particularly as we are now in the process of changing the rules. Is that correct or not?

William Nye: No, I do not think that that is correct. There would be a Duke of Cornwall.

Q3 Chair: Who would be the Duke of Cornwall?

William Nye: The Sovereign would be the Duke of Cornwall. Under the charter as it stands, either the Duke of Cornwall is the eldest son and heir of the Sovereign, or the Duchy of Cornwall reverts to the Crown until there is an eldest son and heir. Of course the charter could be amended; titles are a matter for the royal prerogative, but the Duke of Cornwall would be the Sovereign and the Duchy of Cornwall, the Duke of Cornwall’s private estate, would become the Sovereign’s private estate. At the moment, when the Duke of Cornwall is the Prince of Wales, it is still the Duke of Cornwall’s private estate and it is the Prince of Wales’ private estate.

Q4 Chair: Thank you for that information in regard to the constitutional position. It still strikes me from that answer that there is a separation, which is at the heart of what I want to explore with you, between whoever is heir to the throne and the Duchy of Cornwall, which was established to provide an income to whoever is heir to the throne. They are separate entities-they must be, just from what you yourself have just told us. The Duchy of Cornwall would then become the property of whoever is monarch at that time, but that is separate from whoever is heir to the throne, who would be, if it is a little girl, that little girl, grown up and flourishing.

William Nye: The Duchy of Cornwall is always called the Duchy of Cornwall. It is called the Duchy of Cornwall in the charter and in subsequent legislation. It is easier to understand the Duchy of Cornwall as the Duke of Cornwall’s estate. The Duke of Cornwall’s estate belongs at present to the present Duke of Cornwall, as it has to previous Dukes of Cornwall and occasionally to the Sovereign, when the Sovereign held the Duchy. The Duke of Cornwall manages his estate. It is an unusual estate, because it is prescribed in a royal charter of 1337 and there is some legislation pertaining to it, so it is not exactly the same as every other private landed estate, but it is a private landed estate. He manages it and is responsible for running it. He receives the income from his estate, but the capital, the assets of the estate, he has to maintain for future dukes.

Q5 Chair: I understand all that, but I thought that one of your key arguments, when we look at the way the Duchy of Cornwall is treated in terms of taxation and other issues, is that the Duchy of Cornwall does not have separate legal entity from the Duke of Cornwall. Are you not arguing that?

William Nye: I am saying, since you ask, that it is not a separate legal entity. It is the Duke of Cornwall’s estate, in the same way as if you own a house and rent it out, unless you choose to establish a separate limited liability company to own that house and you own the company, it is your house and you are renting it out; that is not separate from you. On a rather larger scale, because the Duchy of Cornwall estate is rather larger, the Duke of Cornwall rents out properties-

Q6 Chair: I am sorry to interrupt you, but I do understand that. The Duchy of Cornwall is established to provide an income to the heir to the Crown. That is right, isn’t it?

William Nye: Yes, it is.

Q7 Chair: To that extent it therefore became inseparable from the heir to the Crown. If, in the scenario that I have just laid out, the new baby is a little girl who eventually becomes heir to the Crown, at that point the Duchy, with all its income and assets, becomes the property of somebody else. In that context, it must have a separate legal entity from the person who is heir to the Crown.

William Nye: No, the charter of 1337 provides that the Duke of Cornwall’s estate should be the property of the eldest son and heir.

Q8 Chair: Yes, but when there is not one?

William Nye: When there is not one, it provides that it is the property of the Sovereign.

Q9 Chair: Yes, so it is separate. If it becomes the property of another person and not of the person who is heir to the throne, it is a separate legal entity from the person-the individual-who will become our next monarch, who is at that point heir to the throne.

William Nye: I am sorry, Chair, perhaps I am not explaining it very well. The charter provides that when there is an eldest son and heir, that person is Duke of Cornwall. When there is not an eldest son and heir, the Sovereign is the Duke of Cornwall. At all times, the Duke of Cornwall’s estate belongs to the Duke of Cornwall.

Q10 Chair: But the Duke of Cornwall’s estate was established to provide an income to the heir to the throne.

William Nye: When there is an eldest son and heir. It was in 1337, when attitudes were rather different.

Q11 Chair: Okay. I hear what is going on. Let me ask you another question. If the Duchy does not have a legal being-it is not a legal entity, which I think is much of the argument put forward in this context-how can the Health and Safety Executive issue an improvement notice against the Duchy of Cornwall?

William Nye: The Duchy of Cornwall, as I say, is the Duke of Cornwall’s estate, and the property that it owns is in the name of the Duke of Cornwall. The Accounts Directions and the Acts require it to produce things saying, "Duchy of Cornwall", and it acts on the Duke of Cornwall’s behalf.

Q12 Chair: But there must be a legal entity, a legal person, against whom the Health and Safety Executive has the power to issue a notice. There must be. I am trying to drive two questions-one is that they are separate, which you do not accept, and I am now on to a second issue, which is that the Duchy of Cornwall is a separate legal entity. All sorts of issues around taxation flow from that.

William Nye: I may be corrected by Mr Willis, but I think that when the Duke of Cornwall enters into litigation, is litigated against, or has notice against him, things are delivered either to the Duchy Office, pertaining to him, or indeed to what is called rather grandly the Attorney-General to the Prince of Wales, who acts legally for the Prince of Wales, for the Duke of Cornwall.

Q13 Chair: But how does the HSE have the power to take action if the Duchy does not have its own identity? What does the HSE take action against?

Keith Willis: Effectively, it is taken against the Duke of Cornwall.

Q14 Chair: Who is the heir to the throne, or the monarch?

William Nye: Yes.

Q15 Chair: But that does not make the Duchy a legal entity for any other purposes.

William Nye: No, I do not believe it does.

Q16 Chair: A bit muddled. Let me try another one. It is a very confused area, at best. Let us get some things you would accept. Would you accept that you are the chief executive of this organisation?

William Nye: I am not the chief executive of this organisation.

Chair: You have described yourself as such.

William Nye: I have not, I’m afraid, Chair. I am the Prince of Wales’s Principal Private Secretary.

Chair: But there is a chief executive of the organisation.

William Nye: I am a member of the Prince’s Council-

Q17 Chair: Okay. Who is the chief executive of the Duchy of Cornwall?

William Nye: The closest thing to a chief executive is the Secretary and Keeper of the Records.

Chair: He would describe himself as chief executive?

William Nye: He would describe himself as the closest thing to the chief executive.

Q18 Chair: You would accept that the people who are employed by the Duchy pay their PAYE, there is a staff code and you act as any employer?

William Nye: Certainly.

Q19 Chair: You would accept that the chief executive of the Duchy of Cornwall is also the data controller under the Data Protection Act?

William Nye: I believe so, although I am not familiar with that particular point.

Q20 Chair: The Duchy can sue and can be sued?

William Nye: The Duchy is sued from time to time, although-

Q21 Chair: Okay. You do not accept the judgment of the Information Tribunal that you have a separate legal entity, do you?

William Nye: We do not accept the view taken in the judgment you are referring to by the first-tier tribunal in a particular case pertaining to the environmental information regulations.

Q22 Chair: Explain why to me.

William Nye: The thrust of the case was about whether or not the Duchy of Cornwall was a separate public authority. The reason why we are contesting the first-tier tribunal’s finding is that the Duke of Cornwall does not consider the Duchy of Cornwall is a public authority. That case has been appealed by the Attorney-General to the Prince of Wales, and it is currently stayed, but no, we have not accepted the ruling, and we do contest it.

Q23 Chair: This raises an interesting question. If the Duke of Cornwall was the monarch and the Duchy was part of the monarch’s responsibilities and titles, could the courts take action against the monarch?

William Nye: There might still be an Attorney-General. The situation has not prevailed since 1952, which rather pre-dates the Freedom of Information Act and the environmental information regulations, so it has not been tested.

Q24 Chair: But you could have legal action being taken?

William Nye: I think it would be the same as it is for the Duchy of Lancaster, which of course is the other royal Duchy and is also an employer.

Q25 Chair: I will tell you what worries me a little bit. Let me give an example: the Duchy of Cornwall has established a new partnership with JV Energen.

William Nye: Yes.

Q26 Chair: That is a renewable energy plant, isn’t it?

William Nye: It is, yes.

Q27 Chair: It is not making money yet.

William Nye: It is quite new, so it is not making much surplus yet, no.

Q28 Chair: Okay. It is a limited liability partnership, so in normal circumstances it would pay income tax and capital gains tax on profits.

William Nye: The participants would pay whatever tax is due, certainly.

Q29 Chair: Now, I am not sure whether it is the Duchy or the Duke in this instance, but one has a 54% shareholding in the company.

William Nye: The Duchy of Cornwall, which I am using as shorthand for the Duke of Cornwall’s estate, has invested capital in JV Energen.

Chair: 54%?

William Nye: I have to look to Mr Willis on that.

Keith Willis: 54%, yes.

Q30 Chair: Thank you. If and when, as we hope, this company makes profits, will the Duchy of Cornwall pay any capital gains tax on the profits and proceeds?

William Nye: The Duke of Cornwall will pay income tax on the profits and proceeds.

Q31 Chair: Will the Duchy of Cornwall pay any capital gains tax on profits and proceeds?

William Nye: The Duchy of Cornwall does not pay capital gains tax, because the Memorandum of Understanding on Royal Taxation establishes that capital gains tax is not payable. The Duke of Cornwall does not pay capital gains tax because he does not have access to the capital gains, which are all reinvested in the Duchy for the benefit of future dukes, as is required.

Q32 Chair: I understand that. The reason I raised that issue is this: do you think that there is an element of unfairness when the Duchy of Cornwall invests in an undertaking that is bound to be competitive with other renewable energy companies in the UK, but, because of its special status, does not pay corporation tax on profits and proceeds? Other energy companies-assuming that they do not go in for great big tax avoidance schemes, which they might well do-would be liable for capital gains tax on proceeds and profits. Do you consider that there is an issue about fairness and about having a level playing field in the economy arising out of that example?

William Nye: I do not believe that it is unfair, no.

Q33 Chair: Why?

William Nye: I am not sure that it is really my place to comment on fairness overall, but, as you have asked me, the overall arrangements for royal taxation for the Queen and the Prince of Wales are set out in the memorandum of understanding.

Q34 Chair: I understand that; I am taking this as an example of an issue. You very carefully provided us with the memorandum, for which we are very grateful; I have read your report and accounts for two years, for which I am also very grateful. However, on this specific issue, when the Duchy decides to engage in a new area of activity where it will inevitably be competing with other players in the market, is it fair that you could gain a competitive advantage in that market from the Duchy not having to face capital gains tax on profits and proceeds?

William Nye: Overall, I think for most investments by the Duchy of Cornwall it is fair, because there is not any competitive advantage; I can talk about that if you like.

Q35 Chair: There is.

William Nye: If I may say so, for most investments, it is true that the Duchy of Cornwall-the Duke of Cornwall’s estate-does not pay capital gains tax, because it is a requirement by law-

Q36 Chair: Can we stick to the example? That would be really helpful.

William Nye: If I could come to the example in a moment?

Chair: Yes.

William Nye: Thank you. Overall, that is broadly comparable with a wide range of other property-holding companies or organisations. In the case of this particular plant-you did ask, Chair, about this particular plant-it is an anaerobic digestion plant, built on Duchy land, invested in with the Duchy’s assets, built for the long term. We have no particular plan to dispose of it. There have not been any capital gains to date and we have no particular expectation that there will be capital gains so, in that sense, I do not think that there is any particular unfairness.

Q37 Chair: I do not think that you have really answered the question. I hope that this little venture gets into profitability-I doubt that Chris Heaton-Harris thinks it ever will without lots of subsidies, but let us assume that it gets into a profitable arena. At that point, if this company is not facing a tax liability, that will enable you, perhaps, to manipulate your prices, which will give you a competitive advantage over other people operating in that market. Surely that must be correct?

William Nye: I can see what you are driving at. In the operation in the market, I really do not think that there would be competitive distortion. The point which you may be making-if I can try to play it back to you-is that, if the Duchy of Cornwall were to dispose of its holding-

Q38 Chair: No, it is not about disposing of the holding; it is an issue of when the company moves from the investment stage into profitability.

Mr Bacon: Capital gains would not be crystallised unless there were capital gains and there would not be a capital gain unless it was disposed of, so capital gains tax would not be relevant unless there were a disposal.

Chair: That is true, but corporation tax might be relevant.

William Nye: I agree with Mr Bacon; that is the point that I was trying to work towards. There would not be no capital gain-

Q39 Chair: Corporation tax?

William Nye: Corporation tax does not arise. As you know, because you have studied the papers, the Duchy of Cornwall is not subject to corporation tax. The Duke of Cornwall is subject to income tax, and he pays income tax on his income at the normal rates, in the normal way. He does not pay both corporation tax and income tax, and the Duchy of Cornwall is not a separate corporation.

Q40 Chair: But the fact that it does not pay corporation tax establishes a commercial advantage.

William Nye: The Duchy as a whole generates profits like other organisations. Other organisations pay tax on their profits at the rate of corporation tax. The Duke of Cornwall-

Q41 Chair: I am just focusing on this little entity that will be competing in a market. We will come on to the Waitrose warehouse in Milton Keynes, which gives you an income of over £2 million a year, and the Holiday Inn in Reading. All of the Duchy of Cornwall’s investments will give you, we hope, profits-in fact, it has been doing jolly well in a very tough environment.

William Nye: Thank you.

Chair: All that I am really questioning is, in that context, whether there is not a competitive advantage from the tax position to date.

William Nye: I do not believe that there is a competitive advantage overall. As I said, a number of the other bodies which operate in the property holding field benefit from various forms of reliefs-admittedly, those are separate from those that apply to the Duchy of Cornwall-under which they end up paying very little capital gains tax.

Q42 Chair: Paula, do you think that there is a competitive advantage-yes or no?

Paula Diggle: I do not, actually.

Q43 Chair: Why?

Paula Diggle: I do not have a great deal to add to what William just said, except for one thing: when the memorandum of understanding was put together 20 years ago, it was looked at in great depth. Parliament then accepted that that was a fair method of taxing the monarch and the prince-in effect, they regarded it as a question of balance. If the Duke of Cornwall were to be taxed on the corporate income of the Duchy as well as on his income, he would be taxed twice.

Q44 Chair: Why would he be taxed twice? Explain that to me.

Paula Diggle: Well, there would be taxation on the income of the Duchy-

Q45 Chair: But every corporation pays corporation tax and then the individuals pay income tax. Everybody does that.

Paula Diggle: But the Prince is in the unusual position of getting all the income. Parliament accepted in ’93-

Q46 Chair: I accept that. Nobody is trying to challenge the constitutional settlement; we are trying to understand it, and the logic behind it. I cannot understand why you have told me that there is not a competitive advantage for the Duchy of Cornwall in not having to pay corporation tax on either the energy company or the Holiday Inn example in Reading, or the Waitrose warehouse in Milton Keynes, which they are leasing for over £2 million. Why is there not a competitive advantage?

Paula Diggle: Because pretty well every other company that holds property reinvests it.

Q47 Chair: So you are saying that no property company pays tax? That is a wonderful one.

Paula Diggle: I am not quite saying that, but they pay very little.

Q48 Chair: Well, there is something shockingly wrong with a system where you allow a lot of profits to be made out of property and you are not finding a way of taxing it properly, I have to say, if that is really what you are asserting to the Committee: no property company pays tax, so we won’t charge this entity tax. That is shocking, shocking, shocking thing.

Mr Bacon: Because then it would be unfair. I think you’ve finally got it.

Chair: I think it is very unfair on the rest of us if a property company does not pay proper tax on the money it makes out of its investment portfolios. If you are saying the system is such that none of these property empires pay tax, so therefore the Duchy of Cornwall should not pay tax, that is a shocking thing to say.

Paula Diggle: But these companies do pay capital gains tax. As Mr Bacon has just established, the Duchy doesn’t, because it always reinvests its capital gains.

Q49 Chair: Corporation tax, Paula.

Paula Diggle: It was understood in ’93 that this was a fair balance, and there has been nothing to cause us to reconsider it since.

Q50 Chair: Can I again put it to you-finally, to see if I can get a straight answer-that I understand how it was established and why we are where we are, but do you think there is a competitive advantage, apart from your assertion that no property company pays any tax, to the Duchy of Cornwall from the fact that it pays no corporation tax on profits it makes from the entities we have been discussing-either its property interests or indeed and this renewable energy company?

Paula Diggle: I do not believe so.

Q51 Chair: Why? Explain to me why. I am really asking you to help me understand this.

Keith Willis: Perhaps I can help a little here. There are many property companies-she is quite correct-that pay very little corporation tax.

Q52 Chair: They avoid it, do they?

Keith Willis: They do not avoid it. It is distributed to shareholders who pay income tax, so it is transferred. It is tax-transparent. The burden comes off the little corporation tax on to income tax for the recipient.

Q53 Chair: I have to tell you, Mr Willis, in the current context, where corporation tax is less than income tax, I do not believe that to be the case. I do not believe the property companies would arrange their affairs in such a way. I think you are asserting something and there is obviously something else going on in the property empire, which we may have to have a look at, but I do not think anybody would choose to pay income tax at 45%, rather than pay corporation tax at 23% or whatever it is at present.

Keith Willis: It is perfectly normal under the real estate investment trusts: British Land and Land Securities. It is very common within property companies and it is a common structure.

Chair: I just don’t believe it.

Q54 Mr Bacon: Can I explore this a little further with Mr Nye? You mentioned, and the Chair mentioned, the energy company: the anaerobic digestion and biomethane injection plant that we visited last week. From memory, I think about £6 million of investment went into it. It was a fairly impressive piece of kit. Presumably, whoever was making a like investment of that size would also be spending the same amount of money on capital investment-yes?

William Nye: I believe so, yes.

Q55 Mr Bacon: A biomethane injector and an anaerobic digester costs what it costs, whoever is buying it.

William Nye: Correct.

Q56 Mr Bacon: Am I right in thinking that when you later export renewable electricity to the grid, the price that is paid for that is also predetermined?

William Nye: It is certainly taken from the market outside. It is not something you can go and sell at different prices. You sell it at the price that you can get from the gas price.

Q57 Mr Bacon: And anybody building an anaerobic digestion plant, hoping to sell electricity to the grid, would face exactly the same conditions from the potential buyer when they were selling into the grid?

William Nye: Broadly speaking, yes.

Q58 Mr Bacon: So if there is an advantage somewhere, it is not in the investment itself and it is not in the price at which you can sell the electricity for either, is it?

William Nye: No, I don’t believe there is.

Q59 Mr Bacon: So what we are really talking about is what then happens afterwards to the income and the way in which it is taxed, or not taxed. That is an interesting question, potentially, but it is a separate question from the conditions of the business and the amount that you have to put in in order to get out a certain amount, and the conditions upon which you sell-in this case-the electricity.

William Nye: I think I have to agree with you, Mr Bacon.

Q60 Mr Bacon: If you are selling into the grid, the price is determined by the market for electricity. To give you a different example, let’s say a property investment business decided to pay for the building of a shopping centre, such as a Waitrose store and other stores, such as the Duchy or a different investor. The price of buying a fully equipped shopping mall that you could invest in and receive rental income from would be a given amount, no matter what your own individual status would be, wouldn’t it?

William Nye: Subject to how well you can do the work and so forth, but yes.

Q61 Mr Bacon: And the income that you then get, whether you were a property investment management company located in the City or a private estate, would be the same. That is to say, it would be determined by the same factors-rental incomes in the marketplace and so on?

William Nye: Yes.

Q62 Mr Bacon: May I take it that-perhaps I’m wrong about this-because you might be ascribed as having some advantage later down the line, because some of the income is not taxed, would you then, in looking at your tenants, say, "Well, later down the line, we keep more of it because we’re not taxed in quite the same way; therefore, we’re going to give you a discount on your rent compared with other property investment managers and what they would charge you for rent."? Is that how you operate?

William Nye: I think I see what you’re driving at, Mr Bacon, in the sense that if the Duke of Cornwall chose to use the income-the income he receives, not the capital side-to plough back into the business in some particular way, it might be possible to obtain some advantage with particular tenants. As it is, he is required to operate commercially, and we have Mrs Diggle here to make sure that he does operate commercially and at least doesn’t disadvantage future dukes. Instead, of course, he, as you know, chooses to use his income to pay for his public duties and the public duties of his family.

Q63 Mr Bacon: But in terms of the getting of the income, it is not as if he either does or can offer a discount to tenants such as Waitrose on the basis that-

Chair: Why not?

Mr Bacon: This is what I want to explore. It sounds to me as if the assertion might be that because of the tax treatment that he later gets, he is in a position to offer a discount to tenants such as Waitrose that others aren’t in a position to offer, but you sound like you are saying he can’t do that and the main reason he can’t do that is that the Treasury are making sure that he acts commercially, so he offers the same terms and conditions in a competitive market that any other landlord that might be a commercially owned landlord, like an investment management company, would offer. Is that right?

William Nye: There are two or three separate elements here, if I can just untangle them slightly. The Treasury is making sure that the Duchy of Cornwall operates, if not fully commercially, at least for the benefit of future dukes and does not disadvantage the assets. The income is taken and taxed. The Prince of Wales pays tax in the normal way on his income and pays at the income tax rate, and he uses the money not, as it were, to undercut other people; he uses it to pay for his public duties and the public duties of his family.

But also the third element, which I think probably Mr Willis was driving at with regard to corporation tax, is this, although I’m not a tax expert. The comparison is quite complicated. I don’t genuinely believe that there is overall an unfairness, because the Duchy of Cornwall is not instituted as a corporation. Parliament has not legislated to make it a corporation, but if you did and it paid corporation tax at 23% and then the Duke of Cornwall paid income tax at something like 30% with a tax credit, this is not so very different from the 50% tax that he pays anyway, so although I am not saying it is identical-it certainly isn’t-it is not hugely out of line.

Q64 Chair: We will come to his tax in a minute; we are just trying to explore the entity. Do you actually look at the rental income or do you just look at the sales? Do you actually look at what rents are set?

Paula Diggle: Yes, I do.

Q65 Chair: You look at the rents that are set. How do you assess them, with all the other work you are doing?

Paula Diggle: I ask them whether these are a proper commercial return.

Q66 Chair: You ask them. What checks do you yourself do?

Paula Diggle: Well, I quite frequently ask for other checks provided by them-

Q67 Chair: By them?

Paula Diggle: Independently.

Q68 Chair: Do you do any independent assessment?

Paula Diggle: Well, I ask them sometimes for independent checks that they acquire for me.

Q69 Chair: But if we are, as we are now, in a property slump, it would be better to let it, wouldn’t it, even if it is a slightly lower rent, than to leave it empty?

Paula Diggle: That is a question of a nice judgment.

Q70 Chair: But if there is a tax advantage that allows you to let it at a lower rent, you would endorse that, wouldn’t you?

Paula Diggle: And so would many property companies be willing to do, for exactly the same reasons.

Q71 Chair: No, but you would endorse that if there was a tax advantage?

Paula Diggle: Yes.

Q72 Chair: If there’s a tax advantage?

Paula Diggle: No, no; I am not talking about tax. I am talking about making a commercial return. I satisfy myself-

Q73 Chair: But one of the reasons they can make that decision is that there may be a tax advantage?

Paula Diggle: No, I satisfy myself that they make a commercial return. That’s what I’m after.

Chair: Well, if they make a commercial return, it might stay empty.

Q74 Nick Smith: I will put a couple of questions to Mr Nye and then one to Paula Diggle. I want to tackle the issue of perception and fair play.

Mr Nye, if it looks like a duck and quacks like a duck and swims like a duck, you sort of assume it is a duck. Given the Duchy of Cornwall looks and behaves like a corporation, with income from complex investments, and quacks like a corporation, with its council including the great and good from banking, on the face of it, many of my constituents would say that the Duchy should pay corporation tax and capital gains tax. Are my constituents being reasonable?

William Nye: The Duchy is a very unusual organisation. It is a private estate; it is not a corporation. It is a private estate in many respects like other private estates, but in one or two respects not like a private estate. Some of the things that you have highlighted, Mr Smith, still do not make it a corporation. There is a council. It is an advisory council that advises the Duke of Cornwall. As I said a while ago, essentially it is a set of properties that belong to the Duke of Cornwall. The fact that it is a large set of properties and is worth a lot of money does not, per se, make it a corporation. The memorandum of understanding establishes that it is not a corporation and not subject to corporation tax.

Q75 Nick Smith: You did not really answer the question about what you would think if you were one of my constituents in Blaenau Gwent in south Wales. Do you think it is reasonable?

William Nye: I do not think I should put myself into the position of your constituents. I am sure you can represent them, Mr Smith.

Q76 Nick Smith: I try my best. Okay, to return to the first question from the Chair, the Duchy of Cornwall is not subject to tax and the Prince of Wales is not legally liable, as far as I know-he pays it out of choice-to pay tax on his income from the Duchy. How can there justifiably not be any legal requirement on either to pay tax?

William Nye: As the memorandum of understanding on royal taxation sets out, the income from the Duchy of Cornwall and Duchy income that relates to the Crown is technically-I say technically-exempt from tax. For the past 20 years, the Queen and the Prince of Wales have chosen to pay tax. You will probably recall that it was quite a big thing 20 years ago when the change was made. They do not choose how much tax to pay; they choose to pay tax in the normal way. After that, tax is calculated in the normal way on their income. The Prince of Wales pays income tax on his income from the Duchy of Cornwall and any other income that he has.

Q77 Nick Smith: As any payment of income tax by the Prince of Wales is voluntary, as we have agreed, how does that exempt the Duchy from corporation tax requirements? Other similar organisations and people have to pay these corporation taxes, don’t they?

William Nye: The starting point, as I said, is that it is technically exempt, as set out in the memorandum of understanding. As we have discussed with other members of the Committee, it is not a corporation so is not subject to corporation tax. The income is a single flow of income on which the Prince of Wales pays income tax.

Q78 Chair: Could I just go back to this? You keep saying that it is not a corporation, but it has all the features of a corporation. When I asked you all those questions about whether there was a chief executive and did they pay PAYE and so on, you said yes, yes, yes. It has all the features of a corporation. How can you then say that it is not a corporation? I genuinely do not understand it. I want to understand it better.

William Nye: It is an office administering an estate on behalf of the Duke of Cornwall. Naturally, people are employed, such as Mr Willis, by the Duke of Cornwall to administer his estate.

Q79 Chair: But why is not a corporation?

William Nye: I am not a tax expert. We have dealings with-

Q80 Chair: It has all the features. I gave two examples of the Information Commissioner. I understand that you are challenging that. That found you as a legal entity and therefore liable to all these conditions, which would make you liable to corporation tax.

William Nye: No, if I may say, that was quite a narrow point. The finding in the first-tier information tribunal was about the application of the environmental information regulations, which in turn is European law about, as it says, environmental information.

Q81 Chair: Yes, but the point is that you had to be established as a legal entity to allow that to be applied. That is correct, isn’t it?

William Nye: Their view was that it was a public authority. We do not accept that view. Even if they had established-

Q82 Chair: But the courts did. You didn’t; the courts did.

William Nye: Correct.

Q83 Chair: Right, thank you.

William Nye: That particular court, yes.

Q84 Nick Smith: I wanted to come back to the corporation issue. If you are running a big, corporate institution in this country, you surround yourself with people who know their way around banking and industry and running large corporations. Could you just give us a few examples of the people who are on the Prince’s Council that manage the duchy, so that we can get an understanding of their backgrounds?

William Nye: Yes, they are listed in the accounts, which you have, and they are a mixture of people from a mixture of backgrounds. There are some people who are expert in, as you say, banking and finance. There are some who are farmers. Some people are, as it were, representatives of Cornish interests. Some have expertise in commercial property and also in environmental matters. Most people have some business or farming background.

Q85 Nick Smith: I am pretty sure that Mr Rothschild has banking experience.

William Nye: I think you are absolutely right, Mr Smith.

Q86 Nick Smith: I have one more question for you and then a question for Ms Diggle. Do you receive any grants that are only available to the corporation?

William Nye: I do not believe that we do.

Q87 Chair: European subsidies?

William Nye: Do you mean agricultural subsidies?

Chair: Yes.

William Nye: Mr Willis may correct me if I have got this wrong, but I do not believe that the Duchy manages anything in hand, and it therefore does not receive any single farm payment. The Prince of Wales owns one farm-Duchy home farm-which is run like every other farm and is eligible for the same level of European agricultural support as every other farm in the country.

Q88 Mr Bacon: Is that owned by the Duchy?

William Nye: It is owned by the Duke of Cornwall.

Q89 Mr Bacon: But he pays rent for it.

William Nye: Yes, he pays rent.

Q90 Nick Smith: Paula Diggle, what is the principle behind subjecting the Duchy of Cornwall to the Crown exemption from paying tax?

Paula Diggle: Simply that the monarch and the Prince cannot be in business in their own right and cannot build up income during their lifetime for their support. They need state support in order to carry out their business of leading the country, so it would be crazy to tax them on their other income. That was the principle. Of course, it was modified to the extent of the voluntary payment of tax in 1993.

Q91 Nick Smith: Why is the exemption from tax considered appropriate to the Duchy’s commercial activities when other enterprises carrying out the same range of commercial activities are liable for tax?

Paula Diggle: Because, in effect, as Mr Nye has just explained, the Duchy’s commercial enterprises are part of the Duke’s own work establishment.

Q92 Nick Smith: But everybody else pays tax.

Paula Diggle: Well, Crown exemption applies. That is the point.

Q93 Mr Bacon: I should have declared at the outset that one of the members of the council, the Lord Warden of the Stannaries, Sir Nicholas Bacon-no relation that I am aware of-is a constituent of mine and is known to me personally.

Presumably, there is no other commercial entity that is in the business of providing an income to the heir to the throne. Is that right?

Paula Diggle: No. Well, not that I know of.

Q94 Mr Bacon: Not to this throne, anyway. Presumably, if Parliament wished to change the law on this-there have been Acts of Parliament relating to the management of the Duchy-it could do so.

Paula Diggle: It could.

Q95 Mr Bacon: But so far it has not.

Paula Diggle: Correct.

Mr Bacon: Thank you.

Q96 Austin Mitchell: The annual review, which you kindly sent us, says that the Prince of Wales pays income tax voluntarily on the surplus of the Duchy of Cornwall, applying normal income tax rules at the 50% rate, but it does not give a figure for how much tax he pays. The figure-£4.426 million-includes VAT, so what is the actual figure for income tax?

William Nye: You are right that it does include a small element of VAT, and I am afraid that it is not clear to me why it has always been the case that the Prince of Wales, since he started declaring how much tax he paid, has always presented it in this way. The Prince of Wales, although a very distinguished public figure, is still a private individual, so there is a limit to how far I can go in discussing his private tax affairs, but I can tell you that the vast majority of that amount is income tax.

Q97 Chair: That is a really important point, because the assertion is that he pays income tax at the 45% level. He does not, because it includes the VAT component.

William Nye: No, I am sorry if it was not clear. He does pay income tax-50% in the last year and 45% this year. He has a large income and therefore pays at the higher rate. It so happens that for the last seven or eight years the household of the Prince of Wales and the Duchess of Cornwall has produced this annual review, in which he has voluntarily produced information about his personal expenditure and his personal tax affairs, and we have included a figure for tax, which is income tax plus VAT.

Q98 Chair: And what is the VAT for?

William Nye: VAT on things purchased by the household of the Prince of Wales and the Duchess of Cornwall. As I say, the vast majority of that-

Q99 Chair: Why is that shown separately? We all pay VAT. We pay VAT every day of the week; all of us do.

William Nye: Yes, indeed. And I am very sorry to say, Madam Chairman, that I cannot really tell you why it is shown in this way. It has been for a number of years, since my predecessor established this review. What I can tell you is that the vast majority of the figure is, in fact, his income tax payment.

Q100 Chair: You cannot give us the percentage?

William Nye: I think I might have to ask the Prince of Wales whether he was content for me to give you that figure. Those are his private tax affairs.

Q101 Chair: One of our issues is transparency. He claims to pay income tax; it would be very helpful to have that as a separate figure, so that one can understand better what tax he is paying on income, and what VAT he is paying, just like the rest of us do.

William Nye: The VAT is, of course, just like the rest of us, and the income tax is also just like the rest of us.

Chair: That does not quite tot up. We will come back to it.

Q102 Austin Mitchell: In the interests of openness, it should be published, because on the figures that are published, it looks as though Prince Charles’s effective direct tax, plus indirect tax, is 24% of his income for 2012 and 23.6% for 2013. The bottom quartile of households pay 38% of their income as direct and indirect taxes, and for the top quartile it is 33.7%. In the interests of openness, those figures should be published, but let me move on to Nick Smith’s question about-

William Nye: May I make an observation, Mr Mitchell? The Prince of Wales paid last year at 50%, and this year at 45%. He pays income tax on his income after relevant business expenses. That is what is laid out in the memorandum of understanding, which was produced by the Government just this year. It has been that way since the Prince of Wales and the Queen first started paying income tax 20 years ago. His official expenditure, which he chooses to use his private income to meet, is the equivalent of business expenses for somebody who has a business. His business, if you like, is being the Prince of Wales, doing official duties on behalf of the Queen. Those costs are before tax, and then he pays income tax at 50% on the amount after those official expenses. If you take the income before the official expenses and divide it by the tax, you will get the figures you were giving, but that does not give the whole story.

Q103 Austin Mitchell: Okay. Thank you. To get back to Nick Smith’s point that if something looks like a duck and quacks like a duck, it possibly is a duck, the Duchy is a legal person. It can enter into contracts. It buys and sells assets. It employs people. It has trademarks and indeed brands-Duchy Originals-and it has an auditor. It has an audit committee and it has what I think you described as a quasi-chief executive, or somebody who is quite like a chief executive. You are really dodging around, aren’t you, because for tax purposes it is not a corporation, but for every other purpose it is a corporation? Would it not be better if it was just taxed as a corporation, instead of being some kind of mediaeval anomaly that happens to have moved into the business era that we are now in?

William Nye: It is true that it is mediaeval, in the sense that it was founded in 1337, but I think it has moved into the 21st century. It is not a corporation, and I do not think it is a corporation in the ways, with respect, Mr Mitchell, that you suggested. The Duke of Cornwall owns an estate. It is a large estate and it has a lot of property in it, but he has not set it up as a company. He has not set it up as a corporation or, to be more accurate, Parliament has not set it up as a company or a corporation. It is a private estate and it is run as a private estate. Unlike all the other bodies that come before you, it is not a public body. It is run as a private estate and the Duke of Cornwall enters into contracts. He is the registered owner of the assets. Also, if I may correct, with apologies, one small point, it does not own the brand Duchy Originals. That is entirely separate.

Q104 Austin Mitchell: Is it?

William Nye: It is, yes.

Q105 Austin Mitchell: Because I was going to ask Paula Diggle how I would feel about Duchy Originals not paying tax if I were a manufacturer of marmalade that was superior in taste and quality.

William Nye: May I answer that first? Duchy Originals is not part of the Duchy of Cornwall. There are three things it has in common. It has the Prince of Wales in common; it has the word "Duchy" in it; and it does use the Duchy badge. The Prince of Wales established Duchy Originals as an entirely separate social enterprise. He has licensed the Duchy badge and the name to be used by Duchy Originals Ltd. Duchy Originals Ltd is a social enterprise. It creates profits from commercial operations, which go to the Prince of Wales’s Charitable Foundation.

Q106 Austin Mitchell: The profits don’t pay tax.

William Nye: The profits come from a licensing arrangement with Waitrose. Waitrose obviously pays tax. Duchy Originals pays tax. The income goes to the Prince of Wales’s Charitable Foundation, which then distributes it to charities; but it is entirely separate from the Duchy of Cornwall, and that is why it does not feature in the Duchy accounts.

Q107 Austin Mitchell: Just one point: the Prince of Wales’s business activities are wholly commendable-they are very conscientious and environmentally supportive, so all praise in that direction. However, what was a mediaeval entity-a land, a barony, or whatever you call it-has been transformed into a business, and this, from the point of view of value for money for the taxpayer, does give the Prince of Wales more discretion on income and spending than if he was allocated it on a civil list basis, as with the monarchy, because if the profits of the Duchy increase in this kind of fashion, so does his ability to buy more houses-more Highgroves, or whatever-to do more things and to employ more people. It is a mediaeval anomaly, which, because of a business imperative that has transformed it, is really not giving the public the information they need on royal expenditure, nor the ability to check that we are getting value for money.

William Nye: I am sorry if you feel we do not provide the right information to the public. The Duchy produces accounts every year, as it is required to do. It produces 60 pages of accounts; I am told that the accounts are now about twice as long as when the Committee last looked at them. The Prince of Wales also chooses to produce an annual review, which you referred to, Mr Mitchell, outlining what he chooses to do with his money. You are quite right that he does have some freedom. He has the freedom to use his private income as he would like, and he chooses to use his private income to pay for his official duties, and the official duties of the Duchess of Cornwall and the Duke and Duchess of Cambridge, and Prince Harry, which enables them to do all the things they do on behalf of the Queen. He does not have to do that, but he chooses to do so.

Q108 Austin Mitchell: But it would be better if that was paid for by a civil list allocation, in the way the Queen’s duties are, so that we have full accountability-full openness-rather than being at the discretion of the Prince of Wales, subject to his own desires and instincts.

William Nye: Mr Mitchell, you appear to be suggesting that the Prince of Wales should get more money from the taxpayer, and I do not think I should comment on that. That really is a matter of Government policy.

Q109 Chair: The Duchy of Cornwall is owned by whom?

William Nye: It is owned by the Duke of Cornwall.

Q110 Chair: But it goes to the Crown. It is publicly owned.

William Nye: No, it is not publicly owned, Madam Chairman. It belongs to the Duke of Cornwall.

Q111 Austin Mitchell: The point is that he is deciding his own spending, rather than it being decided publicly by a public authority.

William Nye: It is true, Mr Mitchell, that, in the arrangements we have, the heir to the throne receives an income from his private estate; and he chooses to use it on public duties. It would be possible, of course, for Parliament to legislate that that expenditure should be paid for by the taxpayer, instead of being from this private income. It would strike me as a slightly surprising thing for Parliament to choose to legislate for, to be perfectly honest, but Parliament could choose to do that. That would of course leave the Prince of Wales with all his private income to spend on other things.

Q112 Chair: If it is owned by the Duke of Cornwall, he could not leave it to the Battersea Dogs & Cats home, could he?

William Nye: No, he cannot; you are quite right.

Chair: So it’s got a very different sort of constitutional position.

Q113 Mr Bacon: That was the entire point, when it was set up in 1337. Forgive me, because I may have missed something. Was not the original purpose of the monarch, Edward III, in setting this up to provide an income for the heir to the throne that was separate from him as monarch?

William Nye: Yes, it was.

Q114 Mr Bacon: So I haven’t missed something. That was the original purpose-so that he should have more autonomy and be independent of the monarch. That should not come as a surprise.

William Nye: No.

Mr Bacon: That was the plan.

William Nye: That has been the plan since 1337.

Q115 Mr Bacon: So whether things should change is a separate question, but that was the plan.

William Nye: Yes, it was the plan.

Q116 Mr Bacon: Because he is autonomous and appears to have a greater degree of independence than would have been the case had he been on the civil list, which I thought we had got rid of and replaced with the Sovereign Grant Act-

William Nye: You have.

Q117 Mr Bacon: I am right about that too. So there is no civil list any more.

William Nye: No.

Q118Mr Bacon: But the fact that he is independent of all that is by design. That is the intention.

William Nye: That was part of the original plan, yes.

Q119 Mr Bacon: Can I check something with the CAG, who I am pleased to say is the first chartered accountant to occupy his office? I think there has been a CAG going back to the 1300s, but you are the first qualified chartered accountant to hold the office. I know that you have a lot of private sector experience working with companies and corporations. The word "corporation" has been mentioned many times, and I know that you have dealt with many corporations in your career.

Amyas Morse: I am a bit nervous about what you are leading up to.

Mr Bacon: I know you are not a lawyer, but I am hoping, none the less, that you may be able to help me. Am I right in thinking that whether something is a corporation depends on whether you have gone down to Companies House and registered it as a company, and that it is a matter of law, rather than anything else?

Amyas Morse: It is not quite as simple as that, if you will forgive me for saying so. There are number of characteristics to a body corporate, which are tests at law that have been established over a long period-case law. It would be far better talking to a lawyer-since we have a resident lawyer on the Committee, I’ll just haul him in to this as well. There have been various bodies that have said they were not corporations for various reasons and have won or lost those cases. It is certainly true that if you go and register at Companies House as a corporation, you are one, but it is not necessarily true that if you have not registered, you are definitely not one.

Mr Bacon: So it is possible-

Amyas Morse: There are other tests of being a body corporate.

Q120 Fiona Mactaggart: There are not many things that have stayed the same since 1332.

Chair: 1337.

Fiona Mactaggart: I do not think five years out in that many centuries is too problematic, Madam Chair.

Mr Bacon: It depends which five years. If it is the wrong five years, you might get your head chopped off, so it could be very important.

Fiona Mactaggart: The law relating to the Duchy has changed in a number of ways in that time. When the Committee last looked at the matter, one of the things that it was exercised about was greater clarity about the role of the Treasury in the accounts of the Duchy. I have to say, Ms Diggle, that I was a little disconcerted by your description of how you approve things under the 1982 Act-you ask people whether it is good value for money, and so on. I would like to know that there is a proper process, because it is very clear, as I understand it, that on transactions over £200,000 or £500,000, the Duchy has to seek approval from the Treasury. It seems to me that as that is set out in the Act, there has to be some kind of formal process that is followed through. I wish you could tell us what that is.

Paula Diggle: Perhaps I can try and set out the whole process for you. The Treasury, first of all, takes a general overview of the Duchy’s strategy. Mr Willis and I meet quite frequently to talk about the general overview. I do not object if the general strategy seems commercial. If I saw some problem with the commerciality of the strategy, I would have a problem with it, because it would then be a question of wondering whether the property was not being used efficiently enough. As you said, the large transactions come to me for approval. We always go over them, in some depth, as to exactly what is going on. I always want to know, "Is it a market price?" Sometimes I want to check whether it is a market price, as I was saying earlier. Sometimes I want to check whether a market rent is to be charged.

Q121 Chair: Who do you check it with?

Paula Diggle: I usually ask the Duchy to find independent evidence if that is necessary.

Q122 Chair: You don’t independently check?

Paula Diggle: I don’t, because I think it is for the Duchy to prove to me that what they are doing is adequate for the purpose.

Q123 Stephen Barclay: How many times have you not given approval?

Paula Diggle: It isn’t usually a question of that, Mr Barclay. What actually happens is that we talk about any particular project, and only when we both agree that it is in a suitable form to be approved do I put it forward to the Lords Commissioners to sign into a warrant, which then allows the transaction to take place.

Q124 Stephen Barclay: But there have been no transactions that you have objected to?

Paula Diggle: There have been several transactions on which we have had considerable dialogue before approval.

Q125 Chair: Will you answer the question? You have had dialogue, but have you turned any down?

Paula Diggle: We have a dialogue about whether something has an arm’s length price: "Can you prove to us that it is an arm’s length price?"

Q126 Chair: Have you stopped them doing a sale because you thought it wasn’t commercial?

Paula Diggle: No, I haven’t. It is usually the acquisitions or the developments that are more-

Q127 Chair: Have you stopped them doing an acquisition?

Paula Diggle: No, but we have talked about the terms.

Q128 Mr Bacon: I was going to ask exactly that as a supplementary. Have you ended up seeing a transaction done on different terms from those initially proposed by the Duchy, by Mr Willis, because of discussions and inquiries that you have had with Mr Willis?

Paula Diggle: Certainly.

Q129 Fiona Mactaggart: The Act says, "It shall be the duty of the proper officer of the Duchy"-which I assume is probably Mr Willis-"to attach to the accounts particulars of any authorisation" given by the Treasury. I cannot find those, and I have looked. We have seen some £12 million-worth of disposals, and I can see no authorisation anywhere here. Why?

Keith Willis: What we call section 11 warrants for sales and purchases do not get published in the accounts that you are looking at here; section 7 warrants do get published.

Q130 Chair: Explain that to us. We do not understand.

Keith Willis: A section 11 Treasury warrant is a warrant that the Treasury will give to the Duchy for any purchase, sale or improvement to property over the £500,000 that you mentioned before. That is very much the normal warrant for which the Duchy goes to the Treasury to try to achieve. In any one year, there may be perhaps 15 warrants-I am guessing-that the Treasury will have given to the Duchy on that basis.

Q131 Fiona Mactaggart: And a section 7 warrant?

Keith Willis: A section 7 is much, much more unusual. A section 7 warrant is where there is something unusual that may, for some reason, not be at market value, or it may not immediately give a commercial return. That is very unusual, and in any one year there may be one, if any, of those. In the year you are looking at here, there are two of those published in the accounts.

Q132 Fiona Mactaggart: Where do I find them?

Keith Willis: Page 56.

Q133 Mr Jackson: Mr Nye, you will forgive us, but having interviewed the BBC last week, we are a little sensitive to feudal, mediaeval power and plunder of the public purse. I want to ask you a question so that we may understand the differentiation you make on whether the Duchy is a corporation. It seems to me that the Duchy is sui generis-it is something different from anything that exists in the UK, apart from the Duchy of Lancaster-but would you say that it is analogous to, say, a housing association on a very big scale?

A housing association does not usually issue shares, it is a big social enterprise and it engages in commercial activities such as renting out property. A housing association owns the assets, usually homes, but it has a social provision enshrined in primary legislation. It has a chief executive and a chairman who pay tax. In those respects, the Duchy is sort of similar legalistically to a housing association. I am trying to understand. It is not my view that the Duchy is a corporation, but I am trying to understand what you see it as, if it is not a corporation.

William Nye: Thank you, Mr Jackson. Let me think about that.

May I agree with your first point? I definitely agree that the Duchy is sui generis and not exactly like anything else. The thing that it is closest to is the other Royal private estate, the Duchy of Lancaster. Even then, the Duchy of Cornwall is not identical to the Duchy of Lancaster because the rules that apply to the Duchy of Lancaster are slightly different.

I had not previously thought of the analogy you made with a housing association. I know that you are expert on housing and planning matters and housing associations, and I am definitely not an expert on those, so I am slightly reluctant to say, "Oh yes, it is like a housing association", because you know a lot more about them than I do. I have said to people in the past, when trying to explain the Duchy of Cornwall, that it is a bit like a trust in some respects, although it is not formally, legally speaking, a trust. It is a little bit like a family business in some respects, but it is not solely a business. It is an estate, which has a sort of entail in it, although it is a slightly complex entail. It has aspects of social enterprise, in that although it is commercial, it is able to take a long-term stewardship view of what is in the interests of the Duchy overall, meaning the assets for the Duke and future dukes, and of the communities and the tenants. To that extent, it has aspects of social enterprise. I will go that far with your analogy, but probably no further.

Q134 Mr Jackson: So it has an implied positive social good, which may offset some of the questions about liability for tax.

William Nye: Without necessarily buying the second premise in your question, I would certainly hope that the Duchy has some social good. The Duke of Cornwall wants to manage the Duchy of Cornwall not only to generate an income for himself and to increase the value of the assets for his son and for future Dukes of Cornwall, but for the long-term good of the tenants, the communities and the environment.

One of the great advantages of the Duchy of Cornwall and how it is structured is that it can do long-term investments, which I believe are for the benefit of the people in those local communities and the environment. Those members of the Committee who were able to come to Poundbury last week were hopefully able to see in the urban area, rather than the rural area, how that operates. In the rural area, it is much the same. The Duchy is able to, and the Duke of Cornwall himself-the Prince of Wales-is passionately committed to, invest for the long term and look at projects that have a 20, 25, 30 or 35-year return.

Q135 Mr Jackson: And you can confirm to the Committee that you gave us examples of developments at Poundbury that were the subject of quite protracted debate and discussion between you and the Treasury.

William Nye: I am sure that one or two of the buildings-perhaps more than one or two of the buildings-that you saw at Poundbury were ones that Mr Willis and Ms Diggle will have discussed at some length before reaching a mutual understanding of why they were to the long-term benefit of the Duchy and the community.

Q136 Mr Jackson: So the Treasury is in no sense a rubber stamp for anything that you present before it.

William Nye: I really do not think so.

Paula Diggle: I have a long history of controlling public spending and other things in the Treasury. I do not think that any of my counterparts have ever regarded me as a pushover. I think that you had better ask Mr Willis what he finds.

Q137 Chair: I have to say that we have great respect for you, Paula, but I am not sure that the Treasury has got the most fantastic reputation on controlling public expenditure, from this Committee’s perspective.

I was going to come in on a couple of things. Stewart talked about the BBC, but the BBC tried to claim Crown immunity from paying taxation some years back on the basis that it was incorporated by a royal charter and that it carries out public service. That claim was not accepted. Paula, just explain to me what is the difference between the two.

Paula Diggle: A royal charter is normally given to a private sector entity doing worthwhile public duties and goods and is recognised as such. It does not confer any special tax status. For example, we have chartered institutes for civil engineers and for accountants.

Q138 Chair: So the BBC has to pay tax.

Paula Diggle: My understanding is that all these chartered institutes and, for that matter, all the universities that are chartered are liable to tax.

Q139 Chair: What is the difference between that and the Duchy of Cornwall?

Paula Diggle: It is not chartered. It is established under a charter, but it is not a royal charter in the same way that the BBC has one.

Q140 Chair: Can you explain the difference to me?

Paula Diggle: I am not an expert on this field, I am afraid.

Q141 Chair: It is established under a charter, so it seems to me that it is chartered.

William Nye: Sorry, but I do not know anything about the BBC or its tax affairs, Madam Chairman, so I cannot make a comparison. The charter establishing the Duchy of Cornwall is a charter of Edward III, so it was issued by the king. We do not assert that corporation tax should not be paid because there is a royal charter. That is not the case we are making.

Q142 Chair: May I ask about bona vacantia? When people in Cornwall die intestate, does what they leave go to the Duchy or to the Duke?

William Nye: It goes to the Duke of Cornwall.

Q143 Chair: Does it go to him personally, to the Duchy, or what? Your assertion is that they are one and the same, except they are not one and the same if it’s a woman, so I am getting very muddled.

William Nye: The Duchy of Cornwall is the Duke of Cornwall’s estate. By law-I am happy to explain this because is it is slightly odd, and not just the name-if you die in Cornwall and do not leave a will, and you do not have any heirs left who can be identified, the money that is left behind goes, through an ancient property right, to the Duke of Cornwall. For 40 years, I think, the Duke of Cornwall-

Q144 Chair: What happens if there is not a male Duke of Cornwall?

William Nye: It then goes to the Sovereign as Duke of Cornwall.

Q145 Chair: So it goes only to men?

William Nye: Well, no, because the sovereign is, at present, a woman. The present Duke of Cornwall-a man-has concluded that he does not want to benefit from this income, and has therefore arranged to give it all away to charity, and that is what he does.

Q146 Chair: Okay. He hangs on to quite a bit; there is a lot in the budget, because presumably he expects it to be challenged by relatives who come along, even if someone dies intestate, to try to get the money.

William Nye: If there is a relative, there is no question of challenge.

Q147 Chair: There is more than £3 million in the pot, isn’t there?

William Nye: If there was a relative, we would give the money straight away. What happens is that we search for possible beneficiaries. There is some legal cost associated with the administration of all these estates-here I am using estate in the sense of the estate of a dead person, not a landed estate. As you know, winding up any estate involves some costs, but net of those costs, and holding a margin in case a beneficiary appears, the money is all given to a charity, which distributes the money to good causes. The Duke of Cornwall does not retain any of it.

Q148 Chair: But the charity is the Duke’s own-what is it called?

William Nye: The charity is called the Duke of Cornwall’s Benevolent Fund.

Stephen Barclay: It is on page 11.

Q149 Chair: May I ask some questions about some of the donations given by the Duke of Cornwall’s Benevolent Fund? It gave a donation to promote the Isles of Scilly, where the Duke of Cornwall owns a number of properties for holiday lets.

Meg Hillier: He owns the freehold of the Isles of Scilly.

Chair: Is it appropriate that this money should be used for a charity to promote the Isles of Scilly, which he owns?

William Nye: I must say, that is a different angle from what I expected, Madam Chairman. I have been questioned sometimes as to whether it is not right that the income from the Duke of Cornwall’s Benevolent Fund does not all go to Cornwall. If the Duke of Cornwall spends charitable money in Cornwall, where he has a lot of estates, if there is some conflict there, I am afraid that that is unavoidable. He gives some money to help the communities in which he has property. I think you are actually referring to money that was given from the Duchy accounts to the Isles of Scilly.

Q150 Chair: I think it is in the report and accounts-that is where I picked it up.

William Nye: Yes, exactly.

Q151 Chair: A grant went to the Isles of Scilly to promote them as a holiday destination and he owns the freehold-I had not quite picked that up, but I certainly picked up that he has huge interests and properties there-so he will benefit from the charitable donation to promote the Isles of Scilly as a holiday destination.

William Nye: A couple of points, if I may. First, he does own the freeholds of a large proportion of the Isles of Scilly, but not all of the Isles of Scilly. Secondly, the Isles of Scilly are delightful and lovely, and I am quite happy to promote them as a holiday destination as well, but none the less they are a rather economically precarious part of the Kingdom. They are a long way away from the nearest part of the mainland, and they are entirely dependent on tourism and very specialised agriculture. They have a number of small islands with very small populations, and tourism needs promotion in the area.

Q152 Chair: It seems to me an oddity that this charity that is set up to dispense the monies that come from people who die without a will should be used to support the promotion of an island in which he has a strong financial interest-or you do, he does, it does-you know.

William Nye: If I may say, I think the amount of money you are referring to, which is in the accounts, is not actually given by the Duke of Cornwall’s Benevolent Fund; it was money given directly by the Duchy estate.

Keith Willis: It was money donated by the Duchy of Cornwall.

William Nye: It was not from the Duke of Cornwall’s Benevolent Fund.

Q153 Chair: Same thing.

Keith Willis: No. From the Duchy of Cornwall is his own money. It is not the charity.

William Nye: If I may say, I really think it would be quite odd and I think you would be quite critical if the Duke of Cornwall said, "I’m never going to plough any money back into Cornwall. I’m never going to help the Isles of Scilly. I’ll be criticised, because I’ve got an interest there." Would that not be odd?

Q154 Chair: I think it is odd to use charitable donations, like I think it is odd to-

William Nye: As we have just-

Q155 Chair: It was in that paragraph on the bona vacantia. Have I pronounced that right?

William Nye: Yes

Keith Willis: Yes

Q156 Chair: Sort of.

The other thing is, he used some of that money to give money to Gordonstoun. Is that right?

William Nye: I am not certain about that. I will have to send you a note, I am afraid.

Q157 Chair: It has been around quite a long time. Do you know, Mr Willis?

Keith Willis: The benevolent fund?

Q158 Chair: Yes.

Keith Willis: Yes, it did. It donated money, or, basically, sponsored two students, I think.

Q159 Meg Hillier: I should say, Chair, that a Hackney school regularly sends students to Gordonstoun, who seek sponsored places.

William Nye: Could we send you a note on that one, Chair, because I think that may have been some time in the past?

Keith Willis: We are going back. Not in the current year, but yes.

William Nye: Would it help if I said the sort of thing that the Duke of Cornwall’s Benevolent Fund does spend money on? It is things like the Duchy College, Dorchester festival, the Great Western Air Ambulance, St Buryan church, the War Memorials Trust, St Enedoc church appeal, the Devon County Agricultural Association, the Royal Cornwall Agricultural Association and various other charitable causes.

Q160 Chair: Okay. Well, the list I had included Scilly Isles and Gordonstoun, though we will have a look at that.

William Nye: Well, Gordonstoun we will send you a note on.

Q161 Chair: Can I ask two other questions, then I will go to Fiona, who wants to come back in?

Again, in this odd set of arrangements, which I cannot get my head round, the Duke of Cornwall pays rent to himself for Highgrove. Why?

William Nye: Because it is an asset belonging to the Duchy of Cornwall and it is right that it should be a performing asset.

Q162 Chair: But he pays rent-it is the same person.

William Nye: The most important thing about the Duchy of Cornwall-although I have alluded to this, I think we have not touched on it in detail here-is the fact that it has a revenue account and a capital account. The whole reason for the Treasury’s involvement and, indeed, for the production of these accounts is to protect the capital account; hence Parliament’s interest, in a sense. So when the Duchy of Cornwall bought an estate-Highgrove-in 1980, it was deemed at that time appropriate-

Q163 Chair: Why did it buy the estate?

William Nye: I was not serving with the Duchy of Cornwall in 1980, but I think it-

Q164 Chair: The Duke of Cornwall was already using that estate as one of his homes.

William Nye: No, he was not.

Q165 Chair: He was not. Okay.

William Nye: The Duchy of Cornwall bought the estate and rented it to the Prince of Wales. It is therefore a performing asset and makes a commercial return.

Q166 Chair: But they are one and the same. This is my difficulty with this; they are the same person.

William Nye: Yes, but in the Duchy of Cornwall there is a capital account and a revenue account, and we are obliged to look after both of them separately. He pays income, so that that is a performing capital asset.

Q167 Chair: Is there a tax advantage to doing this?

William Nye: I do not believe there is. No.

Q168 Chair: Presumably, he can offset the rent he pays, as an expense, against the income he gets.

William Nye: Well, a proportion of the rent. As the Memorandum of Understanding on Royal Taxation sets out, a proportion of the cost of the Prince of Wales’s properties, in so far as they relate to official duties, is a deductable expense, but the proportion which is not is not.

Q169 Chair: Why does the Duchy buy timber from the Duke? Again, it is one and the same person.

William Nye: I may have to ask Mr Willis. I believe this was about 10 years ago.

Keith Willis: Yes. Well, that was certainly covered at the previous Committee. We are going back. It certainly has not happened again. That was where the Prince personally, with his own money, spent money on trees on Duchy land. There was then a wish for the Duchy to acquire the trees, to amalgamate the trees plus land, but it was a complex and unusual transaction.

Q170 Chair: And it stopped.

Keith Willis: It was a one-off. Yes.

Q171 Chair: I have a few final questions. Last year, he got an income of some £19 million from the Duchy of Cornwall. He said that, of that £19 million-help me with my figures, because I have forgotten them-a certain amount was to pay for carrying out his public function duties.

William Nye: A very large amount.

Q172 Chair: How much?

William Nye: On his own official duties and those of the Duchess of Cornwall, £9.8 million.

Q173 Chair: £9.8 million of the £19 million, so £10 million was left to pay tax on. Is that right?

William Nye: He also pays for the official duties of the Duke and Duchess of Cambridge and Prince Harry as well.

Q174 Chair: Who decides that? Is that based on the memorandum?

William Nye: It is based on the memorandum.

Q175 Chair: Why can’t that be in the open?

William Nye: Why can’t what be in the open?

Q176 Chair: I will tell you what crosses my mind. The Prime Minister has to publish all the dinners he has in Chequers, many of which will be related to his position as Prime Minister. It seems to me that it would be healthy for our understanding and acceptance of this and for the reputation of the Prince of Wales-the Duke of Cornwall in this instance-if we had greater public understanding of how he has assessed his own expenses and what counts and what does not count and so on.

William Nye: This relates to the private tax affairs of the Prince of Wales. In general, the private tax affairs of individuals are not made public.

Q177 Chair: But he is carrying out public duties. That is the whole point.

William Nye: He chooses to use his private income for public duties. Her Majesty’s Revenue and Customs has a very strong culture-I recall from dealing with them-of not discussing the tax affairs of private individuals.

Q178 Chair: You say, "He chooses," but he does not choose. The Duchy of Cornwall was established, as Richard said, to ensure that there was an income for the Duke of Cornwall to carry out his functions and duties. That is why it was established. It is not a choice. Let us at least get that agreed.

William Nye: He chooses how many official duties to do.

Q179 Chair: No. He will spend part of it on his own living expenses, and he will spend part of it on his public functions, but it is there to provide independence and income to enable him to carry out his public duties. It is not a choice.

William Nye: It is there to provide him with an income to do with as he sees fit. The present Prince of Wales chooses to use the great bulk of it on a wide range of official duties-

Q180 Chair: No, sorry, but it was established not for him to use it as he sees fit, but to enable him to carry out his functions as the Prince of Wales without recourse to other public funds.

William Nye: Yes, but the official duties of the Prince of Wales, like many other things, are things that have evolved. He has chosen, in the long period that he has been the heir to the throne, to undertake a lot of official duties on behalf of Her Majesty the Queen. It is not the case automatically that the income generated by the Duchy of Cornwall has always been spent on what we would now call official duties. Edward VII, when Prince of Wales and Duke of Cornwall, was allowed to undertake very few official duties, but still had the benefit of the income from the Duchy of Cornwall. What the official duties were in 1337 is a matter for speculation; they probably did not think of it in quite those terms. The Prince of Wales himself does not have a list of things that he is obliged to do with a bill attached. He does a series of things on the behalf of the Queen and the country, and the cost of doing those things he chooses to pay for himself from his private income.

Q181 Chair: But from income that was established-

William Nye: For him to do with as he chooses.

Q182 Chair: All I want to know is: how does anybody oversee what he charges?

William Nye: There are rules that are set out in broad principles in the Memorandum of Understanding on Royal Taxation.

Q183 Chair: Why can’t he be more transparent about that? Because he chooses not to be.

William Nye: I believe he is very transparent. This is about him paying his tax bill. My finance department-the Prince of Wales’s finance department-fills in a tax return with HMRC. I think it is fair to say that HMRC looks at it rather carefully and ensures that it is content with the amount of tax that the Prince of Wales is paying and that the deductions for business expenses-in this case, the costs of official duties-are appropriate and in line with the Memorandum of Understanding on Royal Taxation. As a result, he pays income tax. I have indicated a broad figure to you, which is the vast majority of the £4.4 million that he chooses to publish. He could, like every other private individual in the country, not publish his income tax bill at all, but he chooses to publish it.

Q184 Chair: We have established one thing this afternoon. He is not like any other private individual. That is the whole thesis on which the current settlement is based. It is a bit daft to say, "like any other private individual". He is not like any other private individual.

William Nye: No, but even the Prince of Wales should benefit from some of the privacy of private individuals.

Q185 Chair: Well, it depends. The greatest benefit is that he has this peculiar taxation status on corporation tax, capital gains tax and income tax. There is a bit of choice in there for him around income tax. All I am saying is that given his status, I think it would help public confidence if he was more transparent about it all.

William Nye: Well, he pays income tax. It is agreed with HM Revenue and Customs. He then gives a figure for the cost of his official duties and the tax amount that he pays as a result.

Q186 Fiona Mactaggart: Thank you for drawing my attention to the Treasury consents. There are two of them. One is to fund £1 million towards the restoration and conversion of Lostwithiel Red Brick Range, which I assume is the Lostwithiel traditional palace of the Duke of Cornwall, but the other one I am more interested in, which is the authority to fund compensation for improvements undertaken by tenants under residential leases of up to half a million pounds per case. Most tenants can’t afford half a million pounds, so I am thinking these must be rather particular tenants. I was wondering whether you could tell us who the tenants are.

Keith Willis: First of all, on the Lostwithiel one, that is a separate building from the one you referred to. The £500,000 is really in relation to compensation the Duchy will pay to tenants. For example, where a tenant-we are going back in time-constructed his house on Duchy land many years ago, that property may now be worth, quite frankly, in excess of £500,000. The tenant wants to move, vacate, whatever, then the Duchy may negotiate a payment between the Duchy and the tenant to buy the tenant’s interest out, so the £500,000, generally, will be a complete residence if we ever get to that stage. It would be very unusual at £500,000.

Q187 Fiona Mactaggart: Exactly. That is why I was wondering whether you could tell us something specific about it. It is quite clear that the Treasury thought, "Hmmm", a little, which is why it has been specifically authorised in this way. I was wondering whether you could tell us, if there are approvals of this kind, have they been used and who by?

Keith Willis: The unusual aspect of this was that it was a catch-all. It was not one specific transaction. I was looking for a blanket warrant to cover any circumstance where the Duchy wished to compensate a tenant, so that made it unusual. It was not specific to one transaction. I was looking for a blanket warrant. Hence, the Treasury said that would be section 7. Generally, the compensation payments we are talking about would be £20,000 or £25,000, something like that, for small improvements that a tenant may have made to a Duchy-owned building.

Q188 Mr Bacon: But if you wanted to buy a whole house in a wealthy area it would be the whole-house price. Is that what you are saying?

Keith Willis: Yes, so the figure of £500,000 was meant to cover almost every instance that the Duchy would be paying compensation for.

Q189 Fiona Mactaggart: So, in effect, the Treasury have given you a free ride to pay compensation at whatever level you negotiate if someone has improved a property on land which is owned by-I am still slightly confused how someone could do this. If they are a tenant and they have done this, didn’t they need permission from you in the first place?

Keith Willis: The Duchy may have a property that the tenant wants to improve. The tenant in the past has improved that property. The tenant leaves. The Duchy, as any normal landlord, would compensate the tenant for his expenditure, which he had carried out.

Q190 Fiona Mactaggart: And you can do that for half a million pounds and it is only in relation to those kinds of properties?

Keith Willis: Yes. I stress, half a million-

Q191 Fiona Mactaggart: It is not for anyone who is currently a tenant of a property owned by the Duchy?

Keith Willis: That is correct. It is numerous small transactions to date under £50,000.

Q192 Fiona Mactaggart: So nothing of the level of half a million, which is the maximum, has been approved?

Keith Willis: No.

Meg Hillier: Chair, I need to make a declaration of interest. I have been advised by the Clerk that I am a trustee of the War Memorials Trust, which I have now learned is funded-I did not realise this, in the many things I see coming through to me-by the Duchy. I have also occasionally bought flowers from the Isles of Scilly.

Chair: Thanks, Meg.

Q193 Nick Smith: A question for Mr Nye. Which home or homes are considered to be the Prince of Wales’s principal homes, and has he paid tax on those homes personally?

William Nye: The principal residences of the Prince of Wales are Clarence House in London, Highgrove in Gloucestershire and Birkhall in Aberdeenshire. Clarence House is part of St James’s palace, and is part of the occupied royal palaces. Highgrove belongs to the Duke of Cornwall’s estate, and, as we have discussed, he pays rent for it. He also does the same for the house in Wales, Llwynywermod.

Q194 Nick Smith: What does he do in Wales?

William Nye: The Duchy Estate owns a house, which he uses from time to time for a number of weekends or longer periods a year-Llwynywermod in Carmarthenshire. I am sorry if I have not pronounced that quite right. He also has a house in Scotland, which he rents from Her Majesty the Queen.

Q195 Nick Smith: I was trying to tally those as you were going along. Is it five?

William Nye: I think I have mentioned four properties.

Q196 Nick Smith: Okay. And Clarence House is his principal?

William Nye: Clarence House is his principal residence in London.

Q197 Nick Smith: How would you class the other homes?

William Nye: He spends quite a lot of time in each of Clarence House, Highgrove and Birkhall, and he makes small, occasional visits to Llwynywermod.

Q198 Nick Smith: Has he personally paid any taxes around any of those?

William Nye: Which taxes did you have in mind, Mr Smith?

Q199 Nick Smith: Council tax, stamp duty. What happens to inheritance tax in future years? The range of things that the rest of us pay.

William Nye: I stand to be corrected-I will certainly send you a note if I have got any of this wrong, Mr Smith-but I believe that he does pay council tax on the private properties. Clarence House is part of the occupied royal palaces. I am afraid that comes under the Keeper of the Privy Purse at Buckingham Palace. I do not know enough about how taxes apply there.

On the two properties that are relevant for the inquiry today, Highgrove and Llwynywermod, stamp duty was paid-at least I am sure it would have been paid-when the properties were purchased, and council tax is paid. Inheritance tax is somewhat complicated in the case of the Crown. The properties of the Duchy of Cornwall are not liable to inheritance tax. The inheritance tax arrangements for the properties of the Duchy of Cornwall are complex because of the way the Duke of Cornwall goes. If the Prince of Wales were to die tomorrow, his son would not inherit the Duchy of Cornwall. The Queen would inherit the Duchy of Cornwall. It is part of Crown transactions and is therefore immune from inheritance tax.

Q200 Chair: And then she can pass it on, can’t she?

William Nye: I can’t speculate on what Her Majesty might choose to do with it.

Q201 Chair: Given the constitutional settlement, what is likely to happen?

William Nye: In the circumstances we have outlined, the Duchy would be the property of Her Majesty the Queen because she would not have an eldest son and heir.

Q202 Chair: So she would be the Duchess of Cornwall?

William Nye: She would be the Duke of Cornwall.

Chair: Outrageous!

Mr Bacon: Why is it outrageous? She is the Duke of Normandy and the Duke of Lancaster. Why can’t she be Duke of Cornwall sometimes as well?

William Nye: It is a bit like her being a Chairman, I suppose.

Chair: I don’t call myself a Chairman, but go on.

William Nye: So inheritance tax does not apply to Duchy of Cornwall properties.

Q203 Nick Smith: A question for Ms Diggle. Why hasn’t the Comptroller and Auditor General been appointed to examine independently the way the Duchy is managed?

Paula Diggle: Because the Duchy of Cornwall is a private estate, and the CAG audits public money.

Q204 Nick Smith: But he also audits the sovereign grant.

Paula Diggle: That is public money too. The sovereign grant is paid through the Treasury estimate; therefore it is public money.

Q205 Nick Smith: Mr Nye, is the Duchy willing to grant the Comptroller and Auditor General access to the books and records underlying your accounts today?

William Nye: I don’t think we think it would be appropriate, for the reason that Mrs Diggle gave. The Comptroller and Auditor General and the National Audit Office, for which I have the highest regard and have dealt with many times in my professional career, are specialised at looking at Government Departments, non-departmental public bodies and public money. The Duchy of Cornwall is a private estate, and I do not think it would be appropriate for the NAO to provide the audit. There is, of course, an external auditor, appointed as required by the accounts direction, and we are very satisfied with the external auditor that we have.

Q206 Austin Mitchell: I was saddened to hear that you did not list an official residence in Yorkshire. There doesn’t seem to be any property in Yorkshire, either. Is that correct?

William Nye: I will have to ask Mr Willis whether there is anything in Yorkshire. The Duchy has traditionally been focused in the south-west, although not exclusively in the south-west. We tend to have less in the north of England.

Keith Willis: I’m afraid that, to my knowledge, we have nothing in Yorkshire.

Q207 Austin Mitchell: That’s very sad for you.

William Nye: I believe that the Duchy of Lancaster, despite the name, does have property in Yorkshire.

Q208 Austin Mitchell: I have an interesting question that came in belatedly from Graham Smith of Republic. He says that Prince Charles became a member of J V Energen LLP, which from our discussion earlier is a very good one, in May 2011, but the Duchy also owns 50% of the members’ capital of QMS (Poundbury) LLP. I thought that when the Labour Government passed these limited liability partnerships they were a way of allowing auditors to escape the full liability for inefficient audits and that they removed the threat to their yachts and houses in Switzerland. Why is the Duchy making use of these LLPs? The letter goes on to state that Republic is concerned that Prince Charles is using LLPs in such a way as to extend the Duchy’s immunity from taxation to businesses carrying out activities not traditionally carried out by the Duchy. How do you answer that?

William Nye: I really don’t think we are doing that. You cite two examples, Mr Mitchell. The first is the anaerobic digestion facility, which we touched on before. That is a joint venture on Duchy land, and it is about providing renewable energy to the people of Dorset. It is also a commercial enterprise, and it is new to the Duchy in the sense that it is the first anaerobic digester that the Duchy has developed, but the Duchy is interested-and the Prince of Wales is personally extremely interested-in renewable energy.

Secondly, the other investment is a joint venture in a part of Poundbury. Is it part of Queen Mother Square?

Keith Willis: Yes, it is QMS, which is one building in Poundbury in which the Duchy has a 50% stake with another developer.

William Nye: So it’s a property development, which is absolutely core to what the Duchy of the Cornwall does.

Q209 Austin Mitchell: So is this going to be an increasing feature, or are those just two-offs?

William Nye: Not necessarily. It is a two-off, if you like. The Duchy has a range of types of investment. In Poundbury, on the whole, it has not directly developed properties itself-mostly other developers are brought in-but in this case it was a joint venture and there is a range of possible ways of developing Poundbury.

Q210 Chair: I have a few questions left that we have not covered. First, the Duchy has performed very well in the past decade, for which those involved, whatever status they have, should clearly take some credit. You have done that at a time when land and property prices have collapsed, which is particularly interesting, and one of the ways you have achieved that is by increasing the income from agricultural rents. Is that right?

William Nye: There have been some rent reviews on agricultural land.

Q211 Chair: It looked to me, from reading your report, that that was a quite significant element, particularly of last year’s growth in income.

William Nye: There have certainly been some successful agricultural rent reviews.

Q212 Chair: Was it a large element of the growth in income in 2012-13?

Keith Willis: No, it was not. On the income side-

William Nye: It has been quite significant on the asset side.

Keith Willis: On the income side, year-on-year, it increased by £250,000.

Q213 Chair: Agriculture: what percentage is that? It is £250,000 from what last year?

Keith Willis: It was a 4% increase.

Q214 Chair: Okay. On page 40 in your accounts, you talk about income from sale of goods of just under £3 million. What are you selling?

Keith Willis: Yes, that did show a fairly dramatic increase year on year. We have two aspects there. We have the Duchy garden nursery, but more important in the year we are looking at was the anaerobic digester side of things.

Chair: So that is the energy sales that have gone in.

Keith Willis: Yes. They came to £1.5 million.

Q215 Chair: On one page-I think it is page 56-you put your income from shares and cash. Paul, can you tell me which page it was on?

Paul Keane: I think you are looking at note 5 on page 42.

Chair: Page 42. Your income from investments, bank interest and other interest was £4.2 million. Is that correct?

Keith Willis: That is correct.

Q216 Chair: And just underneath it, you put loan interest. Are you offsetting that against the income you get?

Keith Willis: I beg your pardon?

Chair: Just underneath note 5, which is the income that you get from shares and cash, is note 6, which covers the cost of loan interest. You are not offsetting that £3.182 million against the £4.225 million, are you?

Keith Willis: No, there is no offsetting. Those are two figures within our accounts shown separately.

Q217 Chair: And on the £4.225 million, does that count towards his personal income, on which he would pay tax?

Keith Willis: Yes, it does.

Chair: It does count in the same way, as he would pay tax in the same way as everyone else does. Okay, I think that that is my lot.

Q218 Mr Bacon: Just a couple more from me. On the income from agricultural land, you said that the rental income went up by 4%. That is correct, is it not?

Keith Willis: If my quick calculation is correct, yes.

Q219 Mr Bacon: I know from my own area of Norfolk that the value of agricultural land has shot up. When I first became an MP, it was £1,500 to £1,800 an acre. It is now up to £10,000 an acre or more, depending on where the land is. Does that mean that you have seen the yield on your holdings of agricultural land fall, if the income has not gone up as much?

Keith Willis: Absolutely. Agricultural yields have fallen dramatically, which is not surprising when the land price is at a record high.

Q220 Mr Bacon: So in order to maintain an income, as it were, you need to have other sources, whether it is the anaerobic digester or whatever it is. You need to diversify into other things.

Keith Willis: On a pure income-yield basis, yes. Obviously the income is income.

Q221 Chair: So are you selling agricultural land?

Keith Willis: We very occasionally sell the odd piece of agricultural land.

Q222 Chair: There were two farms last year, weren’t there?

Keith Willis: That is correct.

Q223 Chair: Are you able to share the capital gain you made on those with us?

Keith Willis: I think the gain that we disclosed within our accounts was about £4 million.

Chair: The gain was £4 million.

Keith Willis: The gain on valuation, yes.

Q224 Chair: On which no tax was paid.

Keith Willis: Capital gains tax, no, as we have discussed.

Q225 Mr Bacon: The thing that interests me-it particularly interested me when I visited Poundbury last week along with other members of the Committee-was that you cannot wander around Poundbury and look at it without being impressed by the very high quality of the built environment. It really is very impressive indeed, yet it is all commercial.

Not only is it all commercial, but the Treasury is watching over you. To quote from the brief in relation to the legislation, the Treasury has "a responsibility to make sure that actions taken by any Duke when managing the Duchy cannot compromise the long-term value of the estate". So you have a duty to be commercial, as it were, and yet you are still able, while maintaining that duty to be commercial and while producing impressive commercial results, to achieve much better outcomes in the built environment than would appear to be delivered by most other holders of property, such as developers, whether it is Persimmon, Taylor Wimpey, Bovis or whoever. How do you square that circle? Plainly the quality is very high, and it begs the question why others are not doing the same.

Keith Willis: The most obvious answer from the Duchy’s perspective is the long-term view that it can take. Poundbury has been in existence for 20 years, and it will probably be going for another 15 years, or something like that.

Q226 Mr Bacon: You mean in terms of building.

Keith Willis: In terms of building. Indeed, when I go to the Treasury, one of the discussions we often have is about the Duchy wanting to look at the long term-invest now, although we may not see the end product for another 10 years or something like that. That is the main thing: we do not require the short-term gain that most public companies would need for their shareholders.

William Nye: Perhaps I could add that, as well as being what the Duchy is able to do, it is also the personal approach of the Duke of Cornwall-the Prince of Wales. He believes in investing for the long term and he believes that investing in high quality over the long term will be good to look at, as you saw, good for people to live in, and produce a better commercial return over time. Certainly as regards Poundbury, that seems to have been successful.

Q227 Mr Bacon: Presumably, there is a slight halo effect. If people see the higher quality, does that attract a higher premium and increase the value of the neighbouring land that might be developed next, because people can see that they are next to something that is more valuable than had hitherto been the case before something was built?

Keith Willis: I am sure that is the case.

Q228 Mr Bacon: I have one question for the Treasury. You are looking over their shoulder making sure they do not do anything that damages the long-term value of the estate, but are you content with the extremely long-term approach, notwithstanding your need to ensure a commercial return? Does that bother you?

Paula Diggle: As I said, we look at whether the Duchy has a commercial approach that will safeguard the capital value of the estate for the benefit of the present and future dukes. This is one way of doing it and we do not second-guess the strategy. You are right; there is a halo effect.

Q229 Mr Bacon: What interests me, I suppose, is that if it is possible to do that and get high quality and a halo effect and so on, why would other commercial property developers not act in a similar way? Presumably, the reason is that they do not have the ability to take the same long-term view.

Paula Diggle: It must be something like that, but I cannot help you there.

Q230 Mr Bacon: Has the Treasury thought about creating structures and incentives that might make them take the same long-term view, so that we have more development of the same high quality that we see at Poundbury?

Paula Diggle: Not to my knowledge.

Q231 Mr Bacon: Is it thinking of looking at that?

Paula Diggle: Not to my knowledge.

Q232 Mr Jackson: I hope you have enjoyed your performance before the people’s soviet of the Public Accounts Committee. Seriously, I was very impressed, like Mr Bacon, with the visit to Poundbury. Mr Willis, what was the indicative sum that Dorset county council indicated in terms of the economic contribution of Poundbury to the local economy? What are the last figures you had?

Keith Willis: I think the last figures I had were something like £250 million.

Q233 Chair: Annual?

Keith Willis: Cumulative.

Q234 Mr Jackson: If it was annual, we would definitely have been made aware. That was the economic impact assessment. Did it date from 2010 or 2012?

Keith Willis: I am not sure, but it was around 2010 or 2009.

Q235 Mr Jackson: Can I ask about the plans for Newquay? I understand that a similar project is at an early stage for Newquay on the north Cornwall coast. Do you envisage it being Poundbury 2? What lessons have you learned since 1993 and the development of Poundbury that will inform the way Newquay is developed, or will it be a completely separate Duchy project?

Keith Willis: I think it is fair to say that many lessons have been learned from Poundbury which will follow on to Newquay-indeed, some of the developers at Poundbury will follow on to Newquay. They know how to build to the Poundbury-type code and so on. Having said that, it is based in Cornwall, not Dorchester, so there will be differences to suit the local environment.

Q236 Mr Jackson: And it will be an urban extension to the town of Newquay?

Keith Willis: Yes, it will.

Q237 Mr Jackson: It will not be a separate settlement?

Keith Willis: No; as with Poundbury, it will be an extension.

Q238 Nick Smith: As a proud member of the Public Accounts Committee soviet, I went to Poundbury last week, and I would like to acknowledge that it is a very worthwhile development. And you know what? Bags of youngsters in my constituency have benefitted from the Prince’s Trust; it has made a tremendous difference to some people’s lives. You have got to say these important things.

I want to move on to the relationship with Waitrose. As we have heard, in 2011 you spent more than £38 million to purchase a supermarket distribution centre, which is leased to Waitrose. There is a Waitrose, which we saw, at Poundbury, and I understand that you also have a planned Waitrose development at a park and ride close to Truro. How are all these deals linked, if they are?

William Nye: They are not really linked at all. The purchase of the distribution warehouse was a large commercial purchase-with Mrs Diggle clearly having looked into it-from a third party. Waitrose is the tenant and therefore provides the rent. It is a good tenant, or a good covenant, as they say, but the transaction to purchase the warehouse did not involve Waitrose at all. Indeed, I suspect that we bought it without talking to Waitrose or them knowing anything about it.

In Poundbury, as you saw, there is a little Waitrose. That is the supermarket that has chosen to set up in Queen Mother square. I think they also have a larger warehouse elsewhere in Dorchester.

Thirdly, as you said, on the edge of Truro, Cornwall council have asked the Duchy to provide some land to make available a park-and-ride scheme, a food hall for Cornish food products, and a supermarket. We have done some planning to make that available for Cornwall council. There again, it happens that the supermarket that has been found and is contemplating being the anchor tenant is Waitrose. But those things are not connected.

Q239 Nick Smith: Okay. One of the things that we have tried to talk through today is this business of a level playing field for other organisations with business arrangements comparable to the Duchy. Do you do any deals or work or are you in partnership with any other supermarket, as well as Waitrose?

Keith Willis: Not recently. In the past, we have dealt with Tesco, for example, at Dorchester. We are having discussions with some of the other retailers about Newquay.

Q240 Chair: Can I just get one final thing clear in my mind? When there is no Duke-

Mr Bacon: No, no, no!

Chair: No-the Duchy is managed by the Crown, but it does not belong to the Crown or to the monarch. Is that right or wrong? The Sovereign does not become the Duke; they act as a caretaker. Is that wrong?

William Nye: I am not sure that I would characterise it in that way. It reverts to the Crown in the same way that other royal titles revert to the Crown.

Q241 Chair: But does the Sovereign become the Duke?

William Nye: My understanding, although this is rather recondite detail on constitutional and royal titles-

Q242 Chair: The separation and separate identity are interesting.

William Nye: My understanding is that the Sovereign would be Duke of Cornwall, in the same way that the present Sovereign-

Q243 Chair: Well that is not my understanding from the Library, which is why I am asking you the question. I understand from the Library that if there is no Duke, although the Duchy is managed by the Crown, it does not belong to the Crown or to the monarch. The Sovereign does not become the Duke, but acts as the caretaker. I want to bottom this out because it is quite relevant to the point about separation and a separate identity. Is that right or wrong information?

William Nye: I do not think it is correct to say that the Sovereign is caretaker. The Royal Duchy of Cornwall reverts to the Crown when there is no separate Duke.

Q244 Chair: Does the Sovereign become the Duke?

William Nye: I believe that he does, or she does.

Chair: Can you check that?

Q245 Mr Bacon: Can I just check something? For the avoidance of doubt, it is correct, is it not, that Her Majesty the Queen is the Duke of Lancaster?

William Nye: I believe that that is correct.

Q246 Mr Bacon: And it is correct, is it not, that the monarch, ever since 1066 and up to the present Queen, is Duke of Normandy?

William Nye: I’m not sure about that, but it is certainly a sort of understanding in the Channel Islands.

Q247 Mr Bacon: When you are in Jersey, they talk about "the Queen, our Duke," don’t they? And they are not referring to her as Duke of Lancaster.

William Nye: When you are in the Channel Islands, they certainly refer to the Queen as the Duke of Normandy, yes.

Q248 Mr Bacon: Okay, so it is not a constitutional impossibility for her to be a duke.

William Nye: By no means.

Mr Bacon: Thank you.

Q249 Chair: All I want you to do is write to me and tell me whether or not the information I have is correct.

William Nye: I would be very happy to do so.

Q250 Mr Bacon: Can I just check one other thing? If it looks like a private ducal estate set up to provide an income to the heir to the throne, and it quacks like a private ducal estate set up to provide an income to the heir to the throne, can one assume that it might just possibly be a private ducal estate set up to provide an income to the heir to the throne?

William Nye: I think that that must be possible, Mr Bacon.

Mr Bacon: Thank you.

Chair: Let us find out. Thank you very much indeed.

Prepared 16th July 2013