With permission, Madam Speaker, I should like to make a statement about my further discussions with Her Majesty the Queen about taxation and Civil List payments.

On 26 November, I told the House that the Queen had asked me to consider the basis on which she might voluntarily pay tax on her personal income and also take responsibility for certain payments under the current Civil List arrangements. His Royal Highness the Prince of Wales had made a similar request in respect of his income from the Duchy of Cornwall.

I am now able to tell the House that the further discussions between the Treasury, the Inland Revenue and the royal household have been completed, and that Her Majesty and His Royal Highness have accepted the arrangements proposed.

The royal trustees are today publishing a report setting out the future tax arrangements for both the Queen and the Prince of Wales. The report includes a memorandum of understanding recording the detailed rules which will apply for income tax, capital gains tax and inheritance tax. The agreement takes effect from 6 April 1993.

It provides for the Queen to pay income tax on all her personal income, whether from investments or from other sources. In addition, tax will be paid on that part of the privy purse income which is used for private purposes. There will be no tax payable on income from the Civil List, since that is used to meet official expenses and is not a source of personal income for the Queen; the same will apply in respect of other payments and facilities provided by the state for official purposes.

Her Majesty will also pay tax on any realised capital gains on her private investments and on the private proportion of assets in the privy purse.

In the unique circumstances of an hereditary monarchy, special arrangements are needed for inheritance tax. There could, for example, be no question of taxing assets such as the royal palaces which the Queen owns as sovereign and not in a private capacity. The agreement reached with Her Majesty therefore provides that inheritance tax should apply to all bequests or gifts by the sovereign other than to transfers of assets from one sovereign to his or her successor.

As the House will know, the Prince of Wales is already fully liable to tax, except on the income that he receives from the Duchy of Cornwall. From 6 April 1993 he will pay income tax on his Duchy of Cornwall income to the extent that it is used for private purposes; this arrangment will replace the voluntary payment of 25 per cent. of Duchy income that he currently makes to the Consolidated Fund.

The Inland Revenue will administer these arrangements, and the tax received from the Queen and the Prince of Wales will be included in the Inland Revenue's accounts. The Queen and the Prince of Wales will both have the same confidentiality on tax matters as any other taxpayer. Although these arrangements are voluntary, both the Queen and the Prince of Wales intend that they should continue indefinitely. Any changes in taxes or tax rates will automatically be applied.

The report of the royal trustees also sets out the new arrangements that are being made for the management of the royal collection of paintings and other works of art. The royal collection is held by the Queen as sovereign and passes from one sovereign to the next. The collection cannot be sold to generate private income or capital for the use of the Queen, and the Queen does not benefit personally from the income generated by the collection.

So as to make the status of the royal collection clear, Her Majesty intends that the maintenance, conservation and presentation to the public of the royal collection should in future become the responsibility of a new charitable trust. The trust will fund itself from the income generated from admission charges and other sources. The new arrangements should improve access to the royal collection for the whole country.

The report also confirms that the Government have accepted the Queen's generous offer to refund the cost of a further five of the parliamentary annuities payable to members of the royal family under the Civil List legislation, in addition to the three annuities that she already refunds. That will apply from 1 April 1993. The result will be that only the annuities paid to Her Majesty Queen Elizabeth the Queen Mother and to His Royal Highness the Duke of Edinburgh will continue as a direct charge on the Consolidated Fund.

I am confident that the House will welcome these initiatives by the Queen and the Prince of Wales. The new arrangements will ensure that, so far as possible, the Queen will pay tax on her personal income according to the normal tax rules and will herself take responsibility for the Civil List payments to almost all other members of the royal family.

I thank the Prime Minister for returning to the House within a reasonably short period to make that announcement. There will be widespread acceptance of the principle that Her Majesty the Queen should not be exempt from tax on her personal income, and that His Royal Highness the Prince of Wales should not be exempt from tax on his income from the Duchy of Cornwall. It will also be appreciated that the initiative came from the royal family itself.

I welcome the proposal to establish a royal collection trust, which will maintain the benefit of the royal collection for the nation. However, although it is accepted that assets held by the Queen as sovereign should not be liable to inheritance tax, will the Prime Minister explain why all private assets passing from one sovereign to the next should also be exempt? Although private assets such as Sandringham and Balmoral could well be regarded as having at least partial official use, which could be recognised, is it necessary to exempt all other private wealth from inheritance tax?

Although it is accepted that the sovereign is entitled to the same privacy in tax matters in respect of her personal affairs as are other taxpayers, can the Prime Minister tell the House in general terms how much is received each year by the privy purse?

With regard to the expenses which may be set against that income, can the Prime Minister say what they might be in general terms? Is my understanding correct that the Queen may set against liability to tax arising from the privy purse the payments which she makes to the Consolidated Fund to reimburse payments made to other members of the royal family?

Finally, can the Prime Minister give us an assurance that as much factual information has been given to the House this afternoon as will be provided at the press briefing to be given by the Lord Chamberlain and a senior Treasury official at 4.15 pm?

On the latter point, so far as I am aware, there is no information available or which is relevant that I am unable to give the House but that will be given later today. I believe that I am able to give as much information as will be available later.

I am grateful to the right hon. and learned Gentleman for his support for the proposals and Her Majesty's initiative and for the new arrangements for the royal collection.

As for inheritance tax, the right hon. and learned Gentleman will accept that there is a unique circumstance in a hereditary monarchy, and it is right therefore that there should be specific exemptions for assets passing from one sovereign to his or her successor. I believe that is necessary to protect the independence of the monarchy, and I would not wish to detract from that independence in any way. The concerns that I would have were the arrangements to be any other would be the danger of the assets of the monarchy being salami-sliced away by capital taxation through generations, thus changing the nature of the institution in a way that few people in this country would welcome.

The sum total of the Civil List is about £8 million. I cannot immediately give the right hon. and learned Gentleman the total of the privy purse, not least because many aspects of the privy purse relate to income from the Duchy of Lancaster and not to matters of which I might immediately be aware. I will find the answer and write to him.

The right hon. and learned Gentleman's point on payments to the Consolidated Fund being set against tax is entirely accurate, and I believe that that is a proper provision against expenditure made by Her Majesty the Queen.

Are there any implications in my right hon. Friend's statement for the royal yacht or for any other forms of transport for the royal family?

The royal yacht and the other facilities such as the royal flight are provided by Government Departments in support of the Queen's role as Head of State. The expenditure is carried on votes approved by the House. These long-standing arrangements are completely unaffected by the announcements I have made this afternoon.

As I was the hon. Member who introduced a Bill two years ago to achieve these objectives, my right hon. and hon. Friends have asked me to respond.

The Prime Minister's statement will not only be welcome on our Benches, but will be seen in the country as principled and popular and one that enhances rather than reduces the status of the royal family. If the royal family is as responsive to the public mood on this issue in the future as it has been in the recent past, it will ensure its continuance for a long time to come.

Only one factual question was left unanswered, and I ask the Prime Minister to be explicit. Can he confirm that the implication of what he said is that the tax rate at which the monarch and the Prince of Wales will pay will be the same as that for everyone else in their tax bracket? Will the right hon. Gentleman and his Government be as speedy to respond to propositions from these Benches as the Queen has been in this respect?

It may of course depend on the merit of the proposal, but I will always be anxious to respond speedily whenever I can.

I am grateful to the hon. Gentleman for his welcome for these proposals. I can confirm that Her Majesty will pay income tax at the marginal rate of 25 per cent. and 40 per cent. in precisely the same way as every other taxpayer.

Is my right hon. Friend aware that his announcement this afternoon will be widely welcomed not only by the House but by the vast Majority of people in Britain? It brings to a conclusion the discussions that have been taking place over several months, and I trust that he is aware that the outcome will be regarded as most satisfactory.

Is my right hon. Friend further aware that his announcement on capital gains tax and, in particular, inheritance tax is also satisfactory? Is he also aware that many people in the United Kingdom will regard the transfer of assets from one monarch to another as an essential part of the monarchy together with its maintenance at a standard which the country desires for many years to come?

I am most grateful to my hon. Friend for his warm support for these proposals. I strongly agree with his remarks about inheritance tax. I suspect that it would be the overwhelming wish of people in this country that the natural and important assets of the monarchy should be sustained and that it is necessary to make appropriate inheritance tax arrangements to ensure that that remains the case.

Is it not clear that this is the first time that there will be a comprehensive list of the royal collection which will enable us to see what is owned personally by the Queen and what is owned as a result of her position as sovereign? Will there be publication of what is owned by her position as sovereign? More importantly, why will the royal collection not be owned by the royal collection trust, a body to be set up to administer it?

It was thought more appropriate to establish trustees to deal specifically with the new arrangements for ensuring that the collection was generally available, more widely seen and operated on a basis which required no subsidy either by the Exchequer or by Her Majesty the Queen. There were detailed discussions as to the best method to achieve that, and the one chosen was the one that I announced this afternoon.

I am grateful to the right hon. Gentleman for his welcome for the new arrangements for the royal collection. Certainly there is no doubt that the royal collection will be codified. Whether those elements of it that will be owned by the Queen will be set out in a separate pamphlet, I cannot immediately confirm, but I see no objection to that.

Does my right hon. Friend accept that many Conservative Members believe that, if greater steps had been taken to publicise the fact that the monarch hands over some 80 per cent. of her income from the Crown lands already, the public pressure for her to be taxed in this way would never have arisen? Does he also agree that, if that money which she receives in the privy purse, which itself is payable out of the Crown lands, is to be taxed so far as it is there for personal purposes, in all equity the whole of her income from the Crown lands should be taxed at the applicable rate and not at the effective rate of 83 per cent. at which it is taxed today?

I can see that my hon. Friend may well have a future ahead of him in the Inland Revenue department examining Her Majesty's tax returns. The underlying point he makes is entirely right as it is certainly true that the hereditary revenues from the Crown estates by far exceed official expenditure in support of the Head of State. I think that that is a point which is understood by my hon. Friend and by many others, but not perhaps by everyone.

In addition to what the hon. Member for Teignbridge (Mr. Nicholls) said, may I question the omission from what has been read by the Prime Minister and in the accompanying documents and the lack of any mention of income from the Crown property which the Queen voluntarily hands to the Treasury each year? The figure set out on page 16 of the Consolidated Fund accounts amounts to £71 million. On page 17, there are other figures which probably amount to the sum total which has just been mentioned by the hon. Member for Teignbridge. Does the Prime Minister agree that that has been an excellent bargain for the taxpayer for the whole of the Queen's reign?

May I ask the Prime Minister to do his best to ensure that those members of the royal family who are now dropped from the Civil List will be accorded the degree of privacy which would be enjoyed by the nephew of any newspaper editor?

Hon. Members:

Hear, hear.

I think that there will be a genuine hum of agreement, as the right hon. Gentleman has just heard, for his latter point. He makes a good point in the figures he quotes, particularly about the £71 million. I did not specifically mention them in my statement to the House, as there were many figures and for me to do so would have detained the House for a long time. As the right hon. Gentleman has seen, they are in the attendant documents which will now be available to the House.

To return to the point made by my hon. Friend the Member for Teignbridge, it is a fact that the surrender of the hereditary revenues which has been in place for over 200 years has ensured a very remarkable sum accruing to the central Exchequer over that period. I believe and hope that the new tax arrangements which are clearly quite different from anything we have seen before will also enable people to realise that very substantial contribution.

Does my right hon. Friend accept that there will be widespread agreement that this demonstrates yet again the Queen's excellent judgment which she has shown consistently throughout her reign? Does he agree that that is why our monarch is admired throughout the world for the service that she has given our country?

I agree with my hon. Friend. That was evident from the point that I made to the House when last I reported on the matter. The impetus for the payment of tax came not from the Government but from Her Majesty the Queen.

I thank the Prime Minister for his statement and welcome its content. I am sure that many hon. Members will want to explore in more detail the inheritance tax provisions. Does the Prime Minister intend to end the anachronistic system under which the Civil List alone is outside the scrutiny of the Comptroller and Auditor General? Will he put it on the same basis as the £50 million-odd that is spent in support of the monarchy by the Department? That scrutiny causes no embarrassment.

The Lord Chamberlain will be holding a press conference at 4.15 at which I understand that an information pack will be available to journalists. Has the Prime Minister made arrangements for an identical information pack to be put in the Vote Office?

I will check. If the information pack was not going to be in the Vote Office, I shall ensure that it is there as a result of the right hon. Gentleman's request. On his earlier point, the Treasury has been the statutory auditor for the Civil List since, I think from memory, 1816. The audit arrangements are part of the Civil List arrangements. They have been approved by Parliament several times in recent years—in the 1950s, twice in the 1970s and again in 1990. Despite the right hon. Gentleman's blandishments, I have no plans to change that.

May I at once welcome the generous offer by Her Majesty, especially bearing in mind the fact that the revenue from the Crown estates exceeds that from official sources? I note that there is a memorandum of understanding, but I ask that a realistic policy be adopted towards any expenses that are incurred. We look to the monarch to represent the traditions and pride of Britain. We are not looking for a cut-price, basement option.

I share my hon. Friend's view. Of course, it is for that reason that we have made the appropriate inheritance tax arrangements and that, to follow up the point raised by the Leader of the Opposition, many of the payments which are made to other members of the royal family are to be offset against tax. That precisely meets my hon. Friend's point.

Is the Prime Minister aware that he has today implemented Clause 40 of the Commonwealth of Britain Bill which I introduced 18 months ago and which is before the House again? Is he further aware that the changes that he has announced today are as nothing to the changes under the Maastricht treaty under which the Queen will become a citizen of Europe with duties and responsibilities like everyone else? To speak of the continuity of an hereditary monarchy in those circumstances is unreal.

Is the Prime Minister also aware that across the political spectrum there is a growing interest in much wider constitutional reform—matters such as the relationship between Church and state, the degree of devolution to Scotland, Wales and the English regions, and the desire for greater democracy? There are people in Britain who would like to be allowed to elect their Head of State, as America does. Does he agree that the time has come to fight off what is otherwise cynicism and disillusionment with many of our institutions by holding a proper inquiry into the British constitution to which people could give evidence? The House could address its attention to such an inquiry instead of all the creepy-crawly bowing and scraping that has come from so many Members of the House today.

The right hon. Gentleman raises various points. I certainly was not aware that I had implemented Clause 40 of his Bill. I can make him no promises as to the first 39 clauses or any which may follow clause 40. On citizenship, if the right hon. Gentleman cares to read the Maastricht treaty more carefully, he will find that Her Majesty the Queen and every other British citizen remain British citizens first and foremost, and at no stage will that be changed.

The right hon. Gentleman raised a much wider remit in his other points. I do not believe that he would carry many people in the country with him in the beliefs that he expressed in his final remarks.

May I echo something that has already been said? The sovereign, as a focus for military, civil and voluntary service in this country, has responded to the popular will. Does my right hon. Friend share my hope that no test will be made of whether any income from copyright damages should be subject to tax? May I suggest that the newspapers involved drop their Opposition to the case, settle and reflect the popular mood in the same way as Her Majesty?

I understand my hon. Friend's point, but I am not sure that I would be prudent to respond to it this afternoon.

As one or two people are claiming credit for this proposal, let me remind the Prime Minister that, on the opening day of this Parliament, Black Rod came into the Chamber, stood beside me and asked us to go and see the Queen. I told her to pay her taxes, and I think that my voluntary unpaid research assistant, Black Rod, has done a reasonable job for a start.

Will the Prime Minister now deal with the hard part of the arrangement? Will the Queen be taxed on the £6,500 million that The Sunday Times declared to be her total assets in May 1992? Will she be taxed on the £500 million that supposedly constituted her personal wealth on the same date? Will she be taxed on the £341 million of investment income mentioned in Philip Hall's book about tax and the monarchy? Or will she be taxed on the £50 million or less that some of the newspapers have recently fed out, suggesting that the Queen does not really have much money at all, and that she will probably pay only two million quid in taxes?

The Queen has been forced into paying tax by pressure from people outside. The last thing that she wants to do is to give those people the impression that there is one tax regime for her and another for the ordinary punter.

I am unwilling to give credit where it is not due. Although the hon. Gentleman sought to make a passable case for taking the credit himself, I repeat that the initiative came from the Queen.

Joke!

The hon. Gentleman admits to being a joke, and I will not argue with him.

It is his birthday today.

In that case, I happily withdraw my last remark. On behalf of the House, I wish the hon. Gentleman a very happy birthday, and I will not respond in the beastly way in which I would otherwise have responded to the ludicrous question that he asked me.

May I invite my right hon. Friend to consider a hypothetical situation? At some time in the future, the balance of party representation in the Chamber may be rather different. If Her Majesty were called on to exercise her royal prerogative and choose between two leaders, one with a high-tax policy and the other with a low-tax policy, would there not be a severe risk of her being inexorably drawn into the forum of party-political conflict? Although her own conduct would be impeccable, is there not a risk that comment on it would not?

May I ask my right hon. Friend to reconsider the decision that Her Majesty should pay tax at the prevailing rate, and think of introducing a special rate that would cross the political boundary?

I do not think that I can accommodate that last suggestion. It is the express wish of Her Majesty that she should pay income tax on her assessed income, in precisely the same way as other income taxpayers, and I believe that that is the right way for her to proceed. As for my hon. Friend's earlier point, Her Majesty is of course unable to vote.

Is the Prime Minister aware that the average inheritance in my Constituency is £13,000, and that many people in Pendle will look askance at the special arrangements for inheritance that he has suggested today? Will the right hon. Gentleman compile an inventory showing which goods belong to the state and which belong to the monarch? No such inventory exists at present.

If the hon. Gentleman thinks that that is how his constituents would react, I do not believe that he knows his constituents remotely as well as he should. I have set out the arrangements under which Her Majesty will pay tax, and I think that they are perfectly clear to the hon. Gentleman.

Does my right hon. Friend agree that, if institutions in this country depended on the popular perception at any one time of individual holders of them, there would be precious few institutions left? Will he state explicitly what he has repeatedly said implicitly—that it is Conservative party policy to support the monarchy?

I can confirm that the Conservative party, and every member of the Conservative party—and many beyond it—are strong monarchists and would not wish to see changes in the institutional hereditary monarchy in this country.

May we try to clarify the position of the rouyal collection trust, which is to be set up at the beginning of April? Why should it not become the owner? It is all very well to say that the Queen will continue in ownership, but the Prime Minister knows that she is advised by the keeper of the Queen's pictures and others. What would happen if the royal collection trust and the keeper of the Queen's pictures came into conflict over accessibility, as well they might? What provision will be made for what we understand to be a considerable part of the royal collection which has never been shown and is in storage? Are practical arrangements to be made for a Division of responsibility to allow the accessibility for which the Public Accounts Committee and others have called?

Of course, there will be practical arrangements, as the hon. Gentleman suggests. One advantage of the ownership remaining with Her Majesty the Queen is that, as she is unable to dispose of the royal collection, it will remain in this country and remain available for people in this country to see, both in the short and the long term.

Does my right hon. Friend agree that this country and the Commonwealth are exceptionally fortunate to have a monarch, in the person of Queen Elizabeth II, whose sense of duty is unquestioned? Will he assure the House that the impact on her personal expenditure will not restrict her in carrying out her duties to the highest standards to which she has always adhered and which we wish her to maintain?

I can unequivocally give my hon. Friend that assurance, and tell him that I know that that would be the wish of Her Majesty the Queen.

Does not the Prime Minister recognise that the royal family's decision to accept taxation is a product of the growing criticism of the royal family and the hereditary Head of State principle? Will he introduce legislation so that the taxation of the Queen and the royal family is not a voluntary matter and so that they are taxed in the normal way like the rest of the community? Will he also ensure that, as a large number of the buildings inhabited by the royal family are owned by the state, they will be more readily open to the public so that they can see what is in them, including what they, the public, own?

I do not accept the premise at the start of the hon. Gentleman's question, and I think that very few other people will. Her Majesty has offered to pay tax on a voluntary basis and has made it clear that she expects it to be a continuing responsibility. His Royal Highness Prince Charles has done precisely the same, and that will remain the position. Taxation will continue, but on a voluntary basis. I see no reason and no need to introduce legislation.