Treatment of Receipts

Duchy of Lancaster Bill – in the House of Commons at 11:30 pm on 21st January 1988.

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`The premium element of any transaction carried out under the provisions of this Act shall be treated as a capital receipt not available for payments to the Keeper of the Privy Purse.'.—[Mr. Dobson.]

Brought up, and read the First time.

Photo of Frank Dobson Frank Dobson Chair, House of Commons (Services): Computer Sub-Committee, Shadow Leader of the House of Commons

I beg to move, That the clause be read a Second time.

The new clause goes to the heart of the Government's intentions. On Second Reading, the Chancellor of the Duchy of Lancaster said: The Duchy's original Charters of Incorporation were not subject to any limits on the powers of the Chancellor and Council of the Duchy of Lancaster to act as they saw fit"— I draw attention to the words "as they saw fit"— in the management of the Duchy's inheritance. But certain improprieties took place, largely during the time of the Stuarts and those abuses had to be corrected. The official view is that the Duchy's revenues, along with those from the Crown estates, were severely depleted during the 17th century and the early part of the 18th century. Duchy property was charged to provide income for members of the royal family, other than the sovereign, or was sold to make up the revenues which could not be obtained from Parliament. Further depletions were checked by the Crown Lands Act 1702, which included the Duchy of Lancaster in its application. This Act, whose detailed provisions have subsequently been amended, but the principles of whose restrictions remain in place, prohibited all grants of the freehold, restricted powers of leasing by limiting terms of years up to a maximum of, as it was then, 21 years and required a rent to be paid of not less than that paid previously and not less than one third of the market rental value.

The Chancellor of the Duchy of Lancaster then went on to say: A limit was imposed, which, at present, is 99 years on the term of what can be conveniently described as a 'building lease' and a restriction on the amount of rental, receivable under such a lease, which could be received by way of premium. A maximum of one third of such rental value can be capitalised in that way." —[Official Report, Second Reading Committee, 17 November 1987; c. 3.] That applies at the moment. The proposal is that in future there should be no limits whatever on the length of leases granted or on the proportion of rental value that can be capitalised.

One of the reasons restrictions were first put on, in the immortal words of the Chancellor of the Duchy of Lancaster, was that the Chancellor and the Council could act "as they saw fit". That was regarded as objectionable. The Bill says that they will be able to lease land forming part of the possessions of the Duchy on such terms as they think fit. In other words, it is proposed that we revert to a position that was regarded as objectionable because it was thought appropriate to place restrictions on the way in which the Duchy conducted its business.

Those restrictions have worked rather well over the years. As the Chancellor himself said, there have been no scandals. They have not been able to fiddle on the capitalisation because the law prevented it. There has been no temptation. It was stopped by the law.

We believe that there is a need to put continuing restraints on all organisations. Restraints, in a limited way, are usually good for most organisations and if all the restraints on the conduct of an organisation are taken away, sooner or later it is likely to get out of hand. We might as well shut up shop in this place if we say that all the organisations in the City work well and there is no fiddling or financial chicanery. We would not need laws to control companies or anything like that. We could rely on the good faith and common sense of the managing companies.

The Chancellor of the Duchy of Lancaster says to us now that we can rely on the competence, common sense and good faith of those who will be, from time to time, the Chancellors and Council of the Duchy. It is an absurd proposition that there should not be any restrictions on the way in which they conduct business; obviously there should be some restrictions.

We are talking about sensible limits. One of those sensible limits would he some sort of restriction on the length of time over which they can sell a lease, which is at present 99 years. In recent changes in the law that were made to extend the powers of the Duchy of Cornwall and of the Crown Estates, neither of those organisations sought extensions beyond 150 years. What is different about the Duchy of Lancaster; why does it need all its restrictions lifted?

Photo of Mr George Foulkes Mr George Foulkes , Carrick, Cumnock and Doon Valley

Will my hon. Friend help the House by saying who are the other members of the Council of the Duchy of Lancaster? We know the Chancellor only too well. He is the deputy supremo of the enterprise culture. I realise that I should know the answer. I should have done my homework as well as my hon. Friend. It would be helpful for us to get a picture of who it is we are expected to place our trust in.

Photo of Frank Dobson Frank Dobson Chair, House of Commons (Services): Computer Sub-Committee, Shadow Leader of the House of Commons

We shall have to rely on the Chancellor to disclose his colleagues. The only thing that I was able to verify in Committee was the fact that Lord Young of Graffham, who was once a property speculator but gave it up because he was losing money, is not a member of the Council of the Duchy of Lancaster. We are all grateful for that. The great deregulators apparently want wholly to deregulate the Duchy of Lancaster. That is an unsound proposition.

I come to the nub of the amendment, which is how the Duchy of Lancaster should treat the premiums it receives when leases are entered into. In Committee I pressed the Chancellor about how premiums would be treated and whether the change in the law might make it possible for the Government—as is their custom these days—to treat premiums, which are capital, as revenue and thus disburse the money and spend it. The Chancellor was good enough to write to me to explain. In his letter, he said: The treatment of the premium element of the transaction as a capital receipt is a matter of established accounting practice. Apparently we are now to rely on "established accounting practice" to make sure that the Duchy of Lancaster treats these premiums as capital and not as revenue.

As hon. Members know, accounting practices change and unless we have some provision in law to ensure that these premiums are treated as capital, it is possible for accountancy practice to change and for the Duchy to be able to spend the premium income as if it were revenue. If it did that, it would be following the example of every Government Department that has disposed of public property since the Government came to office in 1979. That might be described as "established Government practice."

If the Duchy followed established Government practice, it would take the money in as capital and then spend it as revenue. We want to prevent that, and that is why we tabled new clause 2. That new clause imposes no new restrictions whatever on the Duchy of Lancaster because, according to his letter, that is "established accounting practice." I am sure he accepts that accounting practice can change. Therefore, this is not at present an additional restriction on the way that the Duchy conducts its business. However, it is a prudent provision to make sure that the capital possessed by the Crown and the revenues that it receives from that capital are maintained in future against any pressure at any time to treat the capital as revenue. I see no sound reason whatever why the Chancellor should not accept the provision in this new clause.

Perhaps the new clause is not drafted as well as it ought to be. I am always willing to acknowledge, indeed proclaim, the shortcomings of my drafting and would be quite willing to accept new drafts put forward by the Chancellor or by his staff or colleagues. It would be wholly sound and prudent to apply this restriction for the future in order to protect the ultimate revenues of the Crown. I hope that the Chancellor will accept my proposition. If this is not the right way to do it, I hope that he will do something through the House of Lords to meet the objective that I hope I have set out.

Photo of Kenneth Clarke Kenneth Clarke Chancellor of the Duchy of Lancaster, Minister of State (Department of Trade and Industry)

The hon. Member for Holborn and St. Pancras (Mr. Dobson) would be on a perfectly sensible and serious point if there was a risk that the Duchy would revert to the long outmoded practice of treating its capital receipts, its premiums, as if they were revenue available as payments to the Keeper of the Privy Purse. The hon. Gentleman fears that there is some risk of the Duchy Council being able to revert to the less than reputable practices that it followed at the time of the feckless Stuarts and in the days of the early Hanoverians, when Parliament felt obliged to put some restrictions on the way the Duchy of Lancaster was operated.

Photo of Mr George Foulkes Mr George Foulkes , Carrick, Cumnock and Doon Valley

The young pretender.

When the Chancellor is talking about the feckless Stuarts, perhaps he would answer the question that my hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson) was reluctant to answer and tell us who he has as his `oppos' in the operation — not in all the other things he is doing; we have faith in him in his role as the Chancellor of the Duchy of Lancaster. Who does he have about him — John of Gaunt and all these other chappies? We want to know who they are so we know whether the House can put its trust in him.

Photo of Kenneth Clarke Kenneth Clarke Chancellor of the Duchy of Lancaster, Minister of State (Department of Trade and Industry)

My starting point is that the House can trust the present Duchy Council not to start behaving in a disreputable way and using the premiums as revenue. The Attorney-General of the Duchy is Mr. Rattee, a member of the Bar in silk; the vice-chancellor of the County Palatine is Mr. Justice Scott, a High Court judge in the Chancery Division. The other members of the Council are Sir Ashley Ponsonby, Major Shane Blewitt, Mr. John Slater, and Mr. Simon Towneley, who is the Lord Lieutenant of Lancashire. It is a reputable body, which has had a good record in managing the estate in recent years. If the composition of the Duchy Council were to change and we were to come under improper pressure to apply premium income as revenue, I assure the hon. Member for Holborn and St. Pancras and his hon. Friends and the House that they would not be free to do so, even without his new clause.

I have written to the hon. Gentleman and I addressed this matter in Standing Committee, but he is right to press the point. I will spell out the combination of statutory restrictions, accounting practice restrictions and auditing restrictions, coupled with an assurance that I am prepared to give on behalf of the Treasury to reassure him that his fears are groundless.

The manner in which premiums should be dealt with is clear, having regard to the statutory requirement that will remain and will not be repealed by the Bill. The Duchy of Lancaster Lands Act 1855 and earlier legislation deal with the treatment of proceeds of disposals. The Duchy also remains subject to the proper accounting procedures and practices when preparing accounts by the Duchies of Lancaster and Cornwall (Accounts) Act 1838. Given that, in the last debate, the hon. Gentleman expressed great respect for venerable legislation, he will be glad to know that these two Acts are surviving.

The Duchy of Lancaster Lands Act 1855 makes it clear that, although all proceeds of the dispositions of Duchy property belong legally to the sovereign in right of the Duchy, capital receipts must in accordance with the Act be retained and invested by the Chancellor and Council of the Duchy. Receipt of a premium as a result of a disposition of land would be a capital receipt. I have already given assurances on the point in my letter to the hon. Gentleman and in the Standing Committee, when I quoted my letter yet again.

I give a further assurance to hon. Members, in case they still think that the treatment of a premium is in some way discretionary by the Duchy Council. The Treasury has confirmed that all proper accounting practices and procedures are followed and would, if ever required, make a direction to the effect that premiums should be treated as capital. That safeguard is in addition to the independent audit of the Duchy accounts, which I have already given assurances about. No reputable auditors would accept a sudden decision by the Duchy to start using premium income as revenue, as is feared.

I told the Standing Committee the name and standing of the auditor the Duchy uses, who seems to be extremely reputable. Any fear that the passage of the legislation might enable the Duchy Council to behave in some irresponsible way is ill founded; for that reason, I advise the House that the new clause is simply not required.

Question put and negatived.