Select Committee on Public Accounts Minutes of Evidence


Correspondence from the Comptroller and Auditor General to Rt Hon Alan Williams MP


  Thank you for your letter of 20 July 2001 about the cost of royal travel. You posed a number of questions in your letter, and I will take each of the points you raised in turn.


  You asked how the grant-in-aid of £19.4 million budgeted for 1997-98, the first year under the new arrangements, could be reconciled with previous years' figures for the cost of royal travel which you believed to be much lower, possibly up to a maximum of £12 million.

  The table in the attached Annex A provides a breakdown of expenditure for the years 1991-92 to 1996-97, drawn from answers to Parliamentary questions, Appropriation Accounts and the Ministry of Defence. Annex A also includes the corresponding expenditure figures for 1997-98, the first year of the new arrangements.

  The figures in Annex A confirm your understanding that the costs of rail and air travel before 1997-98 were not more than £12 million. However, it is not possible to make direct or sensible comparisons between the 1997-98 figures and those for previous years, without significant adjustment. This is because earlier years' figures were prepared solely in terms of cash costs whereas from 1997-98 the costs of 32 Squadron (which accounted for 85 per cent of the 1997-98 budget) included a full attribution of overhead and support costs, at the request of the Treasury. In particular, these costs included substantial elements for capital depreciation, an allowance for training hours, interest on capital and VAT.

  In addition, you asked to see the further breakdown of expenditure for the years prior to the new arrangements. Prior to 1997-98 expenditures on royal travel were shared between the Ministry of Defence, the Foreign and Commonwealth Office and the former Department of Transport. The departments concerned do not have more detailed data for these years readily to hand and it would be costly to extract them. The departments did confirm, however, that figures prior to 1997-98 were provided on an ad-hoc basis in response to Parliamentary questions, and were not necessarily compiled on a consistent or similar basis to that used to calculate the initial grant-in-aid.


  You asked about the reasons for changing the basis on which the costs of 32 (The Royal) Squadron were recharged to the Royal Household, and what the effects of these changes had been. You also asked whether this meant that the Royal Family has not met a proper share of the full costs of flying.

  From the start of the new arrangements all parties (the Treasury, the Ministry of Defence, the Department of Transport and the Household) were keen that the Household should be charged a rate which represented the full cost of flying. To do so, the Ministry distinguished between the fixed (or capital) costs of operating the Squadron and the variable (or current) cost of each flight. Fixed costs were apportioned between users of the Squadron on the basis of forecast flying hours, and variable charges were based on hours actually flown. This represented a fair and reasonable method for apportioning the full cost of the Squadron (see paragraphs 2.13 and 2.17 of my report "Royal travel by air and rail", HC 25 Session 2001-02).

  The charges for the Household's use of the Squadron went down over the first three years of the grant principally because it gradually reduced the number of hours planned and flown by the more expensive BAe146 aircraft (set out in Figure 9 to my report), and to a lesser degree because the Ministry gradually reduced its unit charges for using the Squadron. The Ministry was able to reduce its unit charges in part through real economies, but more so because each year it reviewed the costs being charged to the Squadron and, armed with better costing information in the run-up to the implementation of resource accounts, it realised that some costs should be excluded because they were not relevant to peacetime or royal flying. The changes in fixed and variable costs, both in total and per unit of charge, over the first three years of the grant-in-aid are set out in Figure 8 and explained more fully in paragraphs 2.12 to 2.15 of my report. Similar changes were expected to further reduce the charges for using 32 Squadron in 2000-01 (see paragraph 2.16).

  On the question of whether the Royal Family is bearing its proper share of the full costs of the Squadron's operation, the system described above was clearly intended to arrive at charges which reflected the full or true cost of royal flying using 32 Squadron, for the sake of improving transparency. We examined the rationale for changing the rates of charge and found it to be reasonable, and have no reason to believe that the rates used were unrealistic. Moreover, because the Household has paid fixed charges based on forecast hours which have almost always exceeded actual hours flown (see Figure 9 of my report) the Household has, in a sense, borne more than its actual share of the Squadron's costs.

  We also wished to establish whether the rate of charge had any indirect effect which would be more costly to the taxpayer by influencing the choice between public provision (through 32 Squadron) and private provision (through charter aircraft). We found that the Household was being treated differently from other publicly-funded users of 32 Squadron, who are charged for variable costs only, and that the full cost charges paid by the Household might lead them to use a private charter even though the variable or marginal cost (and thus the cost to the taxpayer) of using 32 Squadron was less. We also established that the Ministry had confirmed that the Squadron's principal function was for military communications and logistics, and that royal or other use of the aircraft was secondary to this military requirement. The capacity of the Squadron would be determined by military needs alone, with only spare capacity available to royal, ministerial or other VIP use. We therefore recommended, and government has agreed, that the Household should be treated in the same way as other users of the Squadron, by switching to charges based on variable costs alone, to remove this perverse incentive (see paragraphs 2.17 to 2.19).


  You asked that journeys costing less than £500, which are not itemised in detail in the Household's annual report on the grant-in-aid, should be analysed comprehensively before any Committee hearing.

  We have prepared, in Annex B attached, some further analysis that itemises individual journeys by members of the Royal Family and analyses staff journeys by category for the four years since the new arrangements began.

John Bourn KCB

Comptroller and Auditor General

National Audit Office

January 2002

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