Time for lodgers, Your Majesty? Royal budget woes

Tuesday, 28 Jan 2014 | 3:39 AM ET
Pawel Libera | LightRocket | Getty Images

The U.K.'s Royal Household has mismanaged its finances and could do more to pay its own way, according to the British Parliament's finance watchdog.

There is "huge scope for savings" on the annual £31 million ($51 million) of taxpayers' funds that the queen is given to spend on official duties, according to the Public Accounts Committee which oversees government spending in the U.K. to ensure public institutions give value for money.

Margaret Hodge, the chairman of the committee, said that the so-called "Sovereign Grant" used to fund royal duties and travel, maintain palaces and pay staff had not been used effectively by the Royal Household.

"We feel that The Queen has not been served well by the Household and by the Treasury, which is responsible for effective scrutiny of the Household's financial planning and management," Hodge stated in the report which was published by the U.K. government on Tuesday.

The report found that those responsible for overseeing the spending of the grant had "fallen short" in a number of areas including: overspending, not looking after royal property adequately and not generating more income.

(Read more: Queen'scrumbling palaces need $80 million refit)

Net expenditure (calculated at £33.3m) by the household in 2012-2013 greater than the 31 million grant which meant the household had to dip into its reserve fund, leaving a balance of only £1 million at the end of March 2013: "a historically low level of contingency," Hodge commented.

Make Do and Mend?

In addition to overspending, the Royal Household was also neglecting the queen's estate and was "not looking after nationally important heritage properties adequately" the report said, which found 39 percent of royal estate properties in a "dangerous and deteriorating condition."

Recommending that "it must get a much firmer grip on how it plans to address its maintenance backlog," the committee chided the Household that "it had not even costed the repair works needed to bring the estate back to an acceptable condition."

(Read More: Queen's property portfolio 'should invest abroad')

In an attempt to defend its maintenance planning and spending, the Household said it planned to replace the 60-year old heating system in Buckingham Palace, a building which itself is over 300 years old, within three to five years at a cost of between £500,000 and £1 million.

It said it had put off estimating the cost of maintenance "as there had been no point in doing so until it knew whether it would have additional money to allocate to repairs," the report noted.

Although Hodge and the committee praised the Household for increasing its income to £11.6 million in 2012-2013 from £6.7 million in 2007/2008, they believed the Royal Household "could do more." Recommending a dose of austerity at the palace, Hodge said "there is scope for the Household to generate more income and reduce its costs further."

"It's certainly good news that the Royal Household has increased its income in 2012-2013. However, we think it could do more. Since 2007-08, the Household has cut its net costs by 16 percent in real terms, but 11 percent of that was achieved by increasing income, and just 5 percent by reducing expenditure."

"With better commercial expertise in place, we think there is room to do more with less, reducing costs further and supporting The Queen's program more effectively."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt


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