MPs demand review of tax on Prince Charles' £20m income

In a far-reaching report, the Public Accounts Committee (PAC) of the House of Commons today calls on the Treasury to justify the historic tax exemptions enjoyed by both the Duchies of Lancaster and Cornwall.

The MPs also want the Queen and the Prince of Wales to grant the public finance watchdog, Sir John Bourn, access to accounts.

Prince Charles is singled out for criticism for allowing himself to be caught in a conflict of interest over his control over the affairs of the Duchy of Cornwall, which made £13m last year.

The report even asks if the 700-year-old arrangement which allows the monarch and the heir to the throne to derive an income from the profits of the two Duchies should be ended.

Committee members "were surprised to learn" the extent of Prince Charles' involvement in managing the estate. The MPs conclude: "The direct involvement of The Prince of Wales in the management of the Duchy of Cornwall creates a potential conflict between the interests of the current beneficiary and those of future beneficiaries."

The MPs also found that the Prince pays a commercial rent of £336,000 a year for his home, Highgrove, to the Duchy of Cornwall estate. However, they were "surprised to learn that the rental income is credited to the Duchy's revenue account as this must mean that it contributes to the surplus and therefore effectively goes back to the Prince".

The 56,000 hectares of land, farms and businesses owned by the Duchy of Cornwall have increased in value from £308m in 2000 to £463m last year. In the same period the value of the Duchy of Lancaster has risen from £193m to £268m. Profits for the Duchies have respectively increased by £5m and £2.5m.

The MPs compared the profits to "winning the lottery every year". They complained that the complexity of the accounts and lack of public scrutiny give the impression that the estates are managed with " creative accountancy". The Palace and Clarence House deny this.

Crucially the committee noted that the Duchies do not pay corporation or capital gains tax.

Gordon Brown has already succeeded in taking the sting out of the report after he authorised aides at the weekend to defend the Prince of Wales, accusing the MPs of "not treating the Prince of Wales with the respect he deserves".

But last night Labour MPs on the committee attacked the Prince, in spite of the intervention of Mr Brown, who was reported to have had dinner last week with Prince Charles.

Ian Davidson, the Labour MP for Glasgow Pollok accused the Prince of " nepotism and cronyism" for employing his sister-in-law, Annabel Elliot, as an interior designer for the Duchy of Cornwall. "He seems to be giving it to this person just because she's the sister of his wife," Mr Davidson said.

Mr Davidson told The Independent he was not worried about Mr Brown's support for the Prince, saying: "One is going to be king. The other is going to be Prime Minister. I don't mind them having a pint together. I suppose Prince Charles said: 'These guys are having a go at me, can you get them off my back?'"

Prince Charles' wealth is mostly derived from the Duchy of Cornwall, a large estate established by charter in 1337 when Edward III made his son Duke of Cornwall. Its sole function is to provide the heir to the throne with an income independent of the sovereign.

Edward Leigh, chairman of the PAC said: "The Treasury should review the working of the arrangements whereby surpluses from the two Duchies provide an annual income for the Households of the Queen and the Prince of Wales. As these arrangements have been in place for over 600 years, such a review would hardly be over-hasty."

He added: "Our work has revealed obscurities and potential conflicts of interest in the management and governance of the Duchies' accounts. I cannot understand why these accounts are not subject to the same disclosure requirements as other accounts presented to Parliament. More information and explanation need to be given to readers of the accounts, not the least of which is Parliament. And the best way for Parliament to get that information and explanation is for the comptroller and auditor general to be given the power to audit the Duchies' accounts."

Last night a Clarence House spokesman defended the Prince of Wales by pointing out that he pays income tax.

He said: "If the Duchy also paid corporation tax, the Prince would effectively be taxed twice on the same income. Only companies pay corporation tax and many large organisations which are not companies pay income tax. The Prince pays Capital Gains Tax, but not in respect of the Duchy of Cornwall because he does not receive any capital gains from it."

"The Prince of Wales, like everyone else in this country, has a right to maximise his private income. It has never been suggested previously that it is inappropriate to increase income in a sustainable way. The fact that The Prince of Wales uses a large amount of his income to support his official and charitable activities makes what he is doing all the more laudable."

The Royal treasure chest of the Duchy of Cornwall

The wealth of the Prince of Wales is derived mostly from the Duchy of Cornwall, a vast estate established by charter in 1337 when Edward III made his son Duke of Cornwall.

Its sole function is to provide the heir to the throne with an income. The Duchy now includes 70,000 acres in Devon, 18,000 acres in Cornwall, 15,000 acres in Somerset and practically the whole of the Isles of Scilly.

This land supports a range of businesses and agricultural and forestry enterprises valued last year at £463m. In the same period, Prince Charles enjoyed a rise in his profits to £13m, up 11 per cent. The revenues that generate this surplus come from farmers' rent, profits from Prince Charles's businesses and a portfolio of investments.

HIGHGROVE, GLOUCESTERSHIRE

Because the Duchy is required to obtain a proper return from its assets, the Prince pays a market rent of £336,000 a year for Highgrove and the 1,000-acre Home Farm. His rent, and rents paid by other Duchy tenants, form part of his income from the Duchy. But MPs, in the report of the Public Accounts Committee, say they are "surprised" to learn rental income is credited to the Duchy's revenue account, which "effectively goes back to the Prince".

POUNDBURY

The model village outside Dorchester in Dorset, conceived by Prince Charles, is an experiment using traditional architectural styles and local materials.

There is nothing old-fashioned about the cost of living in Poundbury. Prices of the 300 properties in the village vary from £230,000 to £425,000, above the norm for this part of Dorset. In the first phase of development, 20 per cent of homes were classed as affordable and made available for rent through the Guinness Trust housing association.

Critics say only someone as well off as the Prince of Wales could finance such idealistic projects which makes them an unrealistic template for mainstream developments.

DUCHY ENTERPRISES

The Duchy Nursery, which sells a range of exotic plants, and Duchy Originals, the company supplying premium-priced organic biscuits, jams and sausages, is valued at £463m. The profits go to the Prince's charities.

THE ISLES OF SCILLY

Since 1986, the Duchy has accepted a single daffodil as rent from the Isles of Scilly Environmental Trust, which leases all the uncultivated land and uninhabited off-islands. But many tenants are expected to pay a fair rent, and some are aggrieved by the Duchy's decision to enter their holiday-home business. The Duchy has renovated a two-bedroom home traditionally used by teachers on St Mary's. Scillonians say their needs have been put second to add to the £13m-a-year Duchy profits.

THE KENNINGTON ESTATE

The Duchy owns several inner-London properties south of the Thames, but some of the best bits, such as a stretch of river-front by the South Bank Centre, were sold in the 1950s. Nevertheless, the estate owns The Oval, above, run by Surrey County Cricket Club, which used to be charged £10 a year to use the ground. The SCCC pays much more now.

GIFTS

Prince Charles has received gifts worth £20m, many from his two weddings. Some of these were passed on to his staff who sold them on. Control is now tighter.

ART COLLECTION

Many pieces of fine art and furniture that adorn the walls and palatial rooms of Highgrove are personally owned by Charles.

DARTMOOR

Charles owns great tracts of Dartmoor and is paid rent by farmer tenants. The Duchy also owns Dartmoor prison, for which the government pays rent.

The Duchy's 70,000 acres covers a third of Dartmoor National Park and includes most of the high moor, as well as the estuaries of the Tamar, Avon Salcombe and Dart, with seven marinas and 4,000 moorings.