Is the Queen in Debt?

Buckingham Palace and Windsor Castle are instantly recognisable epicentres of the British Royal Family. Much like a penthouse comes with a prestigious CEO job, the palace and castle come with the job of being Queen or King. When the wider media aren’t celebrating or vilifying ‘the firm’ attention switches to the Royal balance sheet on slow news days. In this article, we look at the British monarchy through the selective lens of debt recovery. Singing Royal praises or wailing like a banshee is the preserve of other publications, so in typical Advocate style, we’ll focus on the subject in question rather than how one might sing or wail.

The Crown Estate & Sovereign Grant

Monarchy funding has evolved over the centuries. The most recent change was in 2012. It consolidated four different income streams into a single annual Sovereign Grant. The grant covers the cost of performing Royal duties the upkeep of Royal residences.

The Crown Estate trust is one of the largest land and property owners in the UK. It belongs to the office of the current monarch, is operated at arm’s length, and is neither private property nor that of the government. The Crown Estate was originally created to fund the civil service, defence, and national debt in a time where the Monarch had political power. In more recent times all profits are surrendered by the Queen. In return, a percentage of profits made by the Crown Estate are paid from the public purse as the annual Sovereign Grant. The Crown Estate contains a mixture of agricultural lands, forests, mines, foreshore expanses, retail parks, shopping centres, and offices. Income is generated through tenancies/leases and commercial activities. Incidentally, the Queen remains head of the Civil Service and Armed Forces to this day.

For the year 2020-2021, the Sovereign Grant saw a shortfall of £1.6 million. For most organisations that would be a concern, and creditors would righty feel uneasy. Such deficits are just what the Sovereign Grant Reserve is for, and after covering off the £1.6 million stood at £45.4 million. Like all hospitality and tourism venues, Royal palaces and estates saw a sharp decline in footfall due to pandemic restrictions. The effect was a £10.8 million (nearly 50%) hit on income. Covid restrictions also reduced the number of Royal engagements which along with other modest savings saw £4.9 million shaved off expenses. Much like the ‘common’ business a reduction in costs due to the pandemic was a necessity, albeit on a different scale. In 2017 Buckingham Palace started renovation works, or as the Crown calls it “Reservicing”. This is funded by an increase in the percentage of Crown Estate profits paid from the public purse through the Sovereign Grant.

Duchy of Lancaster

This DOL produces the Monarch’s private income for costs not covered through the Sovereign Grant. Private income covers things such as personal investments, hobbies, and providing for other serving Royals. The DOL dates back to the year 1265. Profits are forwarded to the Privy Purse for the Monarch to draw down as needed. For the year 2020-2021 the DOL made a profit of £22.3 million after £21.5 million was paid to the Privy Purse. Since 1993 The Queen has voluntarily paid income tax and capital gains tax. With assets of £577.3 million as of 2021, the DOL has a smaller portfolio than the Crown Estate. Commercial, agricultural, and residential land are responsible for 92% of DOL income. Unlike the Crown Estate which is not allowed to borrow money, the DOL has loans outstanding of £137 million. This is just £7 million shy of the 25% of assets cap. Whilst the Monarch is not personally liable for the £137 million, the corporation responsible for generating the present Queen’s private income is technically in debt. Most businesses have some form of loan outstanding, and the ratio of debt to borrowing by the DOL is tame compared with other businesses. The DOL pays artificially low interest on borrowings through a financial mechanism known as interest rate swaps. Unlike a mortgage, the interest rate is a fixed rate for the duration. The £137 million of borrowings is comprised of 8 loans with interest rates between 1.485% and 3%. There are also creditors of £22.9 million. Because the DOL is run at arm’s length from the Monarch there is no danger of a debt collection agency serving papers on the Queen or King of their time – although being ‘The’ debt collector who recovered payment from the Queen would make an epic story! Like every business, organisation, charity and individual, no one is exempt from paying their debts as and when they fall due.

Duchy of Cornwall

The DOC produces the Monarch in waiting’s private income for costs not covered through the Sovereign Grant. The DOC operates along the same lines as the Duchy of Lancaster and dates back to the year 1337. Income and capital gains tax have been voluntarily paid since 1993. The sons/daughters of the Monarch in waiting are funded by monies drawn down from the DOC. For the year 2020-2021 the DOC made a profit of £20.4 million after £20.3 million was paid to the Prince of Wales’s office. Assets total £959 million generate income through tenancies/leases and commercial activities. The DOC has £13.4 million of creditors, borrowings of £30 million and £103 million of bonds maturing for investors between 2059-2069.

Public Opinion

In 2015 a petition was registered in Parliament calling for the Queen to pay off the UK’s national debt by selling off some of the Crown’s assets. This garnered 15 signatures in 6 months and was well below the 10,000 threshold to prompt a government response or the 100,000 signatories to be considered for parliamentary debate. With record national debt attributable to the pandemic 7 years on, public opinion may well have changed!

Who’s the Real Debtor?

There is no provision for Royal security within the Sovereign Grant or Duchy income. The cost of security is largely picked up by the Metropolitan Police and exact figures are hard to verify, but the more conservative estimates place it greater than the Sovereign Grant at £100 million per year. If the Monarch was liable for security costs for the year 2020-2021, the Queen would indeed be in debt by £12.5 million for the year based on those unverifiable estimates. On that principal alone, accumulated losses (or indebtedness to the Metropolitan Police) would exceed the Sovereign Grant within 7 years.

As tourists flock to the Crown’s attractions, buying the almost obligatory Union Jack mug and tea towel set along with other paraphernalia there is little doubt Royal tourism has economic advantages. Quantifying the percentage of each pound spent in a shop or restaurant attributable to Royal tourism is an impossible feat. That also goes for what tenants put back into the economy having been allowed to occupy Crown and Duchy premises. With revenue from Royal tourism and the Crown/Duchy’s economic reinput estimated to be in the region of £600 million to £2 billion per year, it could be argued the public purse is indebted to the Queen. Accumulating that over 7 years the public purse would have a minimum net benefit of £3.5 billion.

Business owners, directors and department heads come with all sorts of different titles. It doesn’t matter if we need to chase a Baron, Viscount, Countess, Marchioness or a member of regular society. Debt recovery is still a debt recovery, and the Late Payment of Commercial Debts Regulations 2013 still apply. Debt collection is not a dirty word in high or regular society, in fact, one might say the target of our action is the tainted one!