The Chancellor is also planning a wide-ranging review of the way in which the Government pays the Royals. He is considering changing the rules so that the Queen's pay is reassessed every three years - like other Whitehall departments - rather than once a decade as now.
And Treasury sources said he is considering negotiating with Buckingham Palace the historic convention that the civil list, used to pay staff and other Royal expenses, is never reduced.
The move will reignite suspicions that the Government is trying to reduce the influence of the Royal Family through the back door. Members have already agreed not to sit in the House of Lords when the hereditary peers are thrown out and the Blairite think tank Demos recently proposed the monarchy should be stripped of its constitutional role.
But ministers have been angered by estimates that the Royals will have received surplus payments of pounds 20m by the time the current agreement expires at the end of next year. Payments to the Queen, the Queen Mother and the Duke of Edinburgh, amounting to pounds 8.9m a year since 1991, have been based on the assumption of inflation running at around 7.5 per cent, whereas it is now closer to 2.5 per cent. Buckingham Palace has also spent less than it expected to in the past 10 years, following an intensive cost- cutting drive.
Last week the Royal Household announced savings of pounds 4.5m on travel, following a decision to should make more use of scheduled air flights and train services. It also said that the cost of gas and electricity in the Royal residences had fallen.
Sir Michael Peat, treasurer to the Queen, confirmed there was a substantial surplus in the civil list which would be taken into account when the new arrangements, which take effect in January 2001, were made. "Inflation has been less than estimated therefore the reserve is going to benefit," he said. "Savings will be greater than estimated." Treasury insiders said that the extra money would be clawed back as part of the next deal. "We cannot reduce the money but it is possible not to increase it. We could say any difficulty you get into in the future will have to be paid for from savings," a source said. Labour MPs are also calling for greater transparency in what the civil list money is spent on.
Informal discussions about the civil list, which dates back to the 17th century, have already started. Buckingham Palace has been considering reforms to the Royal finances as part of a drive to get back in touch with the public. The Royals, already stung by public hostility following the death of Diana, Princess of Wales, are concerned about being perceived as extravagant.
The Queen has started paying tax and also agreed to repay civil list money for junior royals. A spokesman confirmed that "the framework is up for discussion" but insisted that formal negotiations had not yet begun.
The civil list was originally used by the sovereign to pay for judges, ambassadors and other government officers as well as expenses of the Royal Household. In 1760 when George III succeeded to the throne it was decided that it would be paid by Parliament, in return for the king surrendering the hereditary revenues of the Crown. Until 1972, the amount of the yearly allocation was set for the duration of a reign, but in 1975 it was decided that there should be an annual review. In 1991 John Major decided the figures should be reassessed every 10 years.Reuse content