The Accounts of the Duchies of Cornwall and Lancaster (HC 313-i) Public Accounts Committee 7 Feb 2005

Evidence given by Mr Bertie Ross, Secretary and Keeper of the Records, Mr Keith Willis, Head of Finance, Duchy of Cornwall, Mr Paul Clarke, Chief Executive and Clerk of the Council, and Mr Chris Adcock, Chief Finance Officer, Duchy of Lancaster

Q48 Mr. Gerry Steinberg (City of Durham): Mr Ross, you said the estates are well managed. Mr Clarke, how do you know they are well managed because you work from a very privileged position of not having to pay tax, you are cushioned. How do you know they are well and efficiently managed?

Mr Clarke: We run a number of benchmarks against the performance of our portfolio and that starts with a composite benchmark which is broken down and marries in with our various investments. Also, we measure each individual part of the portfolio against standard industry benchmarks.

Q49 Mr. Gerry Steinberg (City of Durham): Where do you come out in that?

Mr Clarke: We have consistently out-performed; we are better than the benchmark.

Q50 Mr. Gerry Steinberg (City of Durham): Incidentally, how do you get on the committee which runs these organisations? It looks like a job for the boys, is it?

Mr Clarke: Do you mean the Council?

Q51 Mr. Gerry Steinberg (City of Durham): Yes.

Mr Clarke: The Council is appointed much the same as any other organisation. In fact, we have just appointed two new Council members. That was done through advertising in the Cabinet.

Q52 Mr. Gerry Steinberg (City of Durham): Excellent, because I am retiring at the end of this Parliament and my services will be open for negotiation, particularly if they are on the expenses which I see the Duke of Westminster gets.

Mr Clarke: The Duke of Westminster is not on our Council.

Q53 Mr. Gerry Steinberg (City of Durham): No, he is on Mr Ross's.

Mr Clarke: He is indeed.

Q54 Mr. Gerry Steinberg (City of Durham): If you would like to have a word after the meeting? The revenue services are increasing, are they not, year by year and year by year, and they are substantially increasing, Mr Ross, in the Duchy of Cornwall. Tell me, on page 23 of the accounts - Mr Williams has mentioned this - you sought approval to borrow, as he said, £1.2 million from the capital accounts for revenue purposes. When I was on the Council and Leader of Durham City, we fiddled as well, it was called creative accountancy. If we wanted to get some money from one area to another area - which you were not supposed to do - we creatively accounted so we could use that money. This looks very much like jiggery pokery to me, it looks as though you have been doing a bit of fiddling, have you not?

Mr Ross: I do not see it that way at all. If I look at it with my hat on protecting the capital account ---

Q55 Mr. Gerry Steinberg (City of Durham): The Prince of Wales cannot touch the capital account, but he can touch revenue. If we put the capital into the revenue?

Mr Ross: The capital account is being paid interest for a loan which is then used to run the business.

Q56 Mr. Gerry Steinberg (City of Durham): Sorry, can you say that again?

Mr Ross: The capital account is charging interest to the revenue account for the use of the money for the facility that is there.

Q57 Mr. Gerry Steinberg (City of Durham): The revenue account is substantially increasing each year and the capital account fell from £29.5 million to £2.8 million in a period of four years, is that right? That is what the report seems to indicate.

Mr Ross: I do not know those figures. Our capital account has grown very substantially since we have started.

Q58 Mr. Gerry Steinberg (City of Durham): The surplus in the capital account, according to the report as I read it, fell from £29.5 million to £2.8 million in four years. Yet you are still lending from the capital surplus, which was decreasing considerably, to the revenue surplus, which was increasing substantially. I cannot understand that. As I say, I am not an auditor or an accountant but that seems peculiar to me, why would you be doing that?

Mr Willis: Again, they are not figures I recognise. The capital account has increased significantly over the last X number of years, an increase of £180 million in the last five years.

Mr Ross: The capital account has gone up by 65% since we have been measuring it and publishing the results of our capital accounts.

Q59 Mr. Gerry Steinberg (City of Durham): I will ask you another question. Is the capital cash being systematically transferred to the revenue account?

Mr Ross: No, not in my opinion. We draw a very clear line between the capital ---

Q60 Mr. Gerry Steinberg (City of Durham): It seems to me the National Audit Office has got it wrong then, because from the information which I have sort of read from the National Audit Office, they appear to be insinuating that is happening. Perhaps the National Audit Office can inform us? Am I right or wrong?

Mr Hawkswell: The position is the capital account cash balance, it is not the entire capital account value, it is the level of cash in the capital account which fell from £29.5 million in 2000 to £2.8 million in 2004.

Q61 Mr. Gerry Steinberg (City of Durham): That is what I said.

Mr Willis: You are looking only at the capital cash balance which, indeed, has fallen through that period due to property acquisitions. That is agreed.

Q62 Mr. Gerry Steinberg (City of Durham): My question is if it has fallen considerably, you said it did not ---

Mr Willis: No, the capital value of the Duchy ---

Q63 Mr. Gerry Steinberg (City of Durham): No, I was not talking about that, obviously you were not listening because I said the surplus capital account, the cash, I did not say anything about the total capital value. What I am saying is if the surplus cash is decreasing from £29.5 million to £2.8 million, why are you borrowing from that to the revenue account?

Mr Willis: First of all, the £29.5 million, which you referred to, was a one-off peak in capital cash terms before a major acquisition took place within the following few months. That £29.5 million is very untypical of capital accounts.

Q64 Mr. Gerry Steinberg (City of Durham): What was it used for?

Mr Willis: The £29.5 million?

Q65 Mr. Gerry Steinberg (City of Durham): Yes, the capital cash.

Mr Willis: To buy an agricultural estate.

Q66 Mr. Gerry Steinberg (City of Durham): How much is being transferred to the revenue account which the Prince has access to?

Mr Willis: How much capital has been transferred to the revenue account?

Q67 Mr. Gerry Steinberg (City of Durham): Yes, how much capital cash?

Mr Willis: As I mentioned before, it is only one point. It may borrow - and I stress borrow - in the region of £600,000.

Q68 Mr. Gerry Steinberg (City of Durham): Okay. Both your organisations seem to me to have no transparency at all, you look at them and you could be looking at double Dutch, unless you have someone to look at them for you who really understands accounts. I think Mr Williams has made this point. The daily accounts show that in 2002-03, £300,000 of development work was just written off, but it does not say what it was written off for and why. Why was it written off?

Mr Ross: This was a cost to the revenue account. This was directly a deduction from the surplus which the Prince of Wales would have received. The reason being was if we had moved ahead with this particular development project, it would have added to the capital assets. Once we had got planning permission, or whatever the circumstances were, it would have added to the capital value of that particular project. Because the project has not progressed at the rate and way we thought it should, we felt the right process was to charge this to the revenue account. It was a step taken to increase the surplus to the Prince of Wales.

Q69 Mr. Gerry Steinberg (City of Durham): The Prince of Wales can, in fact, use the whole of the surplus of the revenue account?

Mr Ross: No.

Q70 Mr. Gerry Steinberg (City of Durham): Explain what he can use?

Mr Ross: The total revenue in these accounts is something in the order of £16 million. From that the normal running costs of the business are deducted.

Q71 Mr. Gerry Steinberg (City of Durham): I do not think you listen, I said the surplus. Presumably all the expenses have been taking off. The surplus, what is left at the end of the year, the profit, if you like, on the revenue account, that all goes to the Prince of Wales?

Mr Ross: That is exactly the purpose which we exist for.

Q72 Mr. Gerry Steinberg (City of Durham): How much is that on an average per year?

Mr Ross: Last year it was £11.9 million.

Q73 Mr. Gerry Steinberg (City of Durham): What can he use that £11.9 million for?

Mr Ross: It is private income. It is entirely at his discretion what he wants to use it for. The point I want to make is he does use it for his official duties and private purposes. I would like to make a small point about those official duties because, again, the sum of the money is well used. It is to support the Queen, charitable enterprises and national and traditional excellence. He is paying something in the order of £3.2 million worth of salaries alone for those purposes out of his own private income. The charity generates in the order of £100 million a year. This is a figure which is not in the statement and not realised. He is the biggest multipurpose charitable enterprise in the country.

Q74 Mr. Gerry Steinberg (City of Durham): Let me ask another question. I read also in the report that you are now starting to use - and you can say it comes out of the revenue account - capital cash to pay staff costs, is that right?

Mr Ross: Correct.

Q75 Mr. Gerry Steinberg (City of Durham): If you are using capital cash to pay staff costs, it means you are not using the revenue cash, which means that allows the Prince to have extra money through the back door.

Mr Ross: This is very much in accordance with accountancy best practice.

Q76 Mr. Gerry Steinberg (City of Durham): You mean the creative accounting which I mentioned earlier.

Mr Ross: These are two clear distinctions. We do a lot of work on the capital account which is buying, selling and improving. Those charges are charged legitimately and in accordance with best practice to the capital account.

Q77 Mr. Gerry Steinberg (City of Durham): My time is up, but I will ask you one more question. I saw this but I did not know whether I read it correctly. Is it right that anybody who dies in Cornwall, intestate, the Prince inherits?

Mr Ross: This is one of the traditional things we have inherited.

Q78 Mr. Gerry Steinberg (City of Durham): This is a yes or no answer.

Mr Ross: No. The answer is it goes to the Prince of Wales and he puts it into a benevolent fund.

Q79 Mr. Gerry Steinberg (City of Durham): What is that used for?

Mr Ross: It is a charity. It is used for education, religion, et cetera. We try to focus it back into the area from which it has come.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.