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Public Accounts Committee publishes it's 25th Report on The Duchy of Cornwall Accounts 2012-13.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said: 

“The Duchy of Cornwall performed well in 2012-13, increasing its total income and producing an overall surplus of £19.1 million.

“However, there are a number of steps that could help to bring the Duchy, an historic institution, more in line with the expectations of the present day. 

“The Treasury does not do enough to properly scrutinise the Duchy’s finances. It relies on the Duchy to provide it with accurate information without carrying out its own independent checks. Details of the Treasury’s approvals for the Duchy’s proposed land transactions over £500,000—of which there are around 15 a year—are not published. Greater transparency is needed.

 “The Duchy enjoys an exemption from paying tax even though it engages in a range of commercial activities. This tax exemption may give it an unfair advantage over its competitors who do pay corporation and capital gains tax. The Treasury should examine whether the Duchy’s tax exemption creates an unlevel playing field.

“The transparency of the Prince of Wales’ tax payments is limited by the fact that income tax and VAT are reported only as a combined total. These figures should be disclosed separately, so we can understand precisely how much, and at what rate, income tax is paid by the Prince.

“At the moment, the Duchy’s charter rules that each future Duke of Cornwall be the eldest son and heir of the Monarch, which is out of line with the Succession to the Crown Act 2013. A female heir to the British throne should be allowed to bear the title ‘Duke of Cornwall’.”

Margaret Hodge was speaking as the Committee published its 25th Report of this Session which examined the Duchy of Cornwall.

The Duchy’s principal activity is management of the land and properties which make up its estate to provide an income for the present and future Dukes of Cornwall. In 2012–13, the Duchy reported a total income of £28.8 million and a surplus of £19.1 million. No corporation tax is payable on this £19.1 million surplus. The surplus is distributed as income to The Prince of Wales, the current Duke of Cornwall. After taking account of £1.2 million income from public sources and £11 million in expenses for carrying out official duties, this gave a remaining surplus of £9.2 million, on which The Prince of Wales voluntarily paid tax. The combined total of income tax and VAT paid by The Prince of Wales was £4.4 million.

We welcome the Duchy’s success in achieving an increased revenue surplus. In 2012–13, the Duchy reported a total income of £28.8 million and a net revenue surplus (that is, after deducting costs) of £19.1 million; compared with the previous year’s figures of £26.5 million and £18.3 million respectively. The Duchy attributed this success to its taking a long-term view in its financial strategy, its investment in commercial, high-quality and innovative schemes, and careful diversification of its range of assets. The Committee visited Poundbury and was impressed by the quality of the built environment and the long-term commercial approach taken by the Duchy to the development and its portfolio. The Duchy is currently planning an urban extension to Newquay, for which it has arranged to use some of the developers it employed at Poundbury.

Recommendation: The Duchy should apply the good practice employed and lessons learned from developing Poundbury into its proposed urban extension at Newquay.

The Duchy’s charter has not kept pace with constitutional change. The Duchy estate was created in 1337 and the charter ruled that the Duke of Cornwall will be the eldest surviving son of the Monarch, and the heir to the throne. The Succession to the Crown Act 2013 has made succession to the Crown no longer dependent on gender, in contrast to the Duchy’s charter whereby the Duchy reverts to the Crown in the absence of a male heir.

Recommendation: The Duchy would benefit from being brought into the present-day to allow a female heir to the British Crown to bear the title ‘Duke of Cornwall’.

The Treasury does not do enough to scrutinise the Duchy’s financial strategy. The Treasury is required to ensure that the Duchy maintains the long-term value of the estate; for example, it has to approve any proposed land transactions over £500,000 (approvals are known as ‘Section 11’ warrants) and to check that the Duchy has a commercial approach to its business. However, the Treasury does not carry out its own independent checks on the information provided to it by the Duchy. For example, it does not seek its own independent evidence on whether the Duchy’s proposed land sales or rents charged are at the market price. Instead the Treasury simply relies on the Duchy to provide it with accurate information or for the Duchy to commission its own checks. There are no details published in the Duchy’s accounts of the Treasury’s approvals of proposed land transactions over £500,000, of which there are around 15 a year.

Recommendation: The Treasury should publish its process for scrutinising the Duchy’s strategy and proposed land transactions, its methodology for validating information offered by the Duchy, and arrange for the Duchy to publish details of Section 11 warrants in its accounts.

There is no clear understanding whether the Duchy’s Crown Exemption from corporation tax and capital gains tax produces adverse consequences for competitors which do pay these taxes. The Duchy is engaged in a range of business activities like other commercial enterprises, with the difference that other businesses are subject to the usual rules on corporation and capital gains tax. This tax exemption might mean that competing businesses do not have a level playing field on which to operate. The Duchy and the Treasury pointed out that the Duke of Cornwall does, voluntarily, pay income tax on income derived from the Duchy, and that the Duchy’s tax position had been accepted by Parliament.

Recommendation: The Treasury should examine the impact on the marketplace of the Duchy engaging in commercial transactions while exempt from tax.

The transparency of The Prince of Wales’s tax payments could be improved by reporting separate amounts for income tax and VAT. After allowing for official costs, The Prince of Wales and The Duchess of Cornwall Annual Review 2013 showed a surplus of £9.2 million in 2012-13, on which The Prince of Wales voluntarily paid income tax. The combined total of income tax and VAT paid by The Prince of Wales was £4.4 million. This amount was not broken down into its two elements and so it is not transparent precisely how much, and what rate of, income tax is paid by The Prince of Wales (though we acknowledge the Duchy having told us that the vast majority of the £4.4 million is income tax).

Recommendation: The Prince of Wales and The Duchess of Cornwall Annual Review would benefit from disclosing separate figures for income tax and VAT.

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