The Sovereign Grant as a Monarchical Annuity

Unable to focus on writing owing to Ottawa’s heat wave, I spent a couple of hours debating a British journalist about whether or not the Queen is taxpayer funded in the UK. (Ok, I procrastinated.)

His argument was essentially that the Queen’s annual Sovereign Grant is paid by the Treasury, therefore the Queen is taxpayer funded. Since the Treasury uses taxes to pay for the expenses of the British state, it follows that Queen is being funded by taxpayers because she receives an annual sum of money from the Treasury.

My counterargument is that the Queen is given the Sovereign Grant in exchange for surrendering to the Treasury the profits of the Crown Estate, property owned by the Queen in her legal capacity but managed by independent trustees. This arrangement dates back to 1760, when the money the monarch accrued from Crown lands were insufficient to fulfil the Sovereign’s government responsibilities. Parliament agreed to fund the monarch through an annual Civil List payment in exchange for the revenue generated by certain Crown lands. Since that time, the British government has grown significantly, and the Sovereign is no longer directly involved in governing. Taxes and other revenue collected by the state now pay for most of the expenditures of the British state. In the mid-twentieth century, the Crown lands whose profits had been surrendered in exchange for the Civil List were reconstituted as the Crown Estate to “avoid confusion between Government property and Crown land”. Finally, in 2011, the Civil List was abandoned in favour of the Sovereign Grant, which provides the monarch with an annual disbursement from the Treasury indexed at a certain percentage of the profits the Crown Estate provides the Treasury per year. The purpose of the Sovereign Grant is to pay for expenditures related to the Queen’s remaining official duties as head of state. In 2011, the Sovereign Grant was indexed at 15% of the Crown Estate’s profits and in 2017-2018 it is indexed at 25%.

To my mind, the relationship between the Crown Estate and Sovereign Grant is reciprocal. The Queen is paid a portion of the Crown Estate profits to fulfil her duties, while the Treasury gets to keep the rest. Having the Crown Estate profits go to the Treasury and having the Sovereign Grant disbursed by the Treasury, moreover, ensures that Parliament can scrutinize both the management of the Crown Estate and the disbursement of the Sovereign Grant more effectively.

For the British journalist and those who agree with him, however, this is all a mirage. The Crown Estate has essentially been absorbed by the British state and it belongs to the monarch in name only. Indeed, saying that the Queen owns the Crown Estate in a legal capacity simply means that the property is now publicly owned, since the Queen’s legal capacity is the concept of the state in the United Kingdom. As a result, the Crown Estate’s profits are public funds, like taxes the British government collects from its citizens, and the Sovereign Grant is therefore taxpayer money that Parliament has told the Treasury to give the Queen. The fact that the money comes from the Treasury and not from the Crown Estate directly proves that the Queen is taxpayer funded, regardless of what historical arrangements surround the Estate and Grant.

In the end, this is a conceptual debate. I think the history and nature of the arrangement matter; it isn’t accidental that the Estate and Grant are almost always presented as intimately linked. The Treasury serves to make the transfer of funds more transparent, open to parliamentary scrutiny, and it simplifies the government’s ability to keep most of the Estate’s profits while paying the Queen the percentage required in a given year. My interlocutors believe that the money found in the Treasury’s consolidated fund comes from the taxpayer, broadly defined.

To help make my case, I’ll conclude by offering an analogy. The Sovereign Grant is like an annuity you can buy from an insurance company. The way an annuity works is as follows: you pay an insurance company a lump sum in exchange for an annual pension. The insurance company bets that it can make more money off interest and people dying before the total of the lump sum is paid out, and you get the security of having an annual pension if you live past what your lump sum would have provided in your dying years. The thing with annuities, though, is that you can’t get your lump sum back after you pay it. Nor it is in a protected account. The insurance company uses the money to do whatever it needs to do in a given year, paying out claims, etc. Similarly, the money you get can come from whatever other sources of revenue the insurance company has, such as premiums paid by other clients. But it doesn’t matter, since the insurance company has agreed to pay you a set amount.

The question then is this: who pays for your annuity? We know it’s the insurance company. But when we ask where the money comes from, we can either say from the lump sum we paid the company or from the premiums that the company collects from other clients. Put differently, did your lump sum buy you your annuity or are you living off the premiums paid for by other clients? I’d say your annuity comes from your lump sum agreement.

In the case of the Sovereign Grant, the agreement to surrender the profits of the Crown Estate is like an annual lump sum paid by the Queen for a yearly annuity. She agrees to give the profits in exchange for a guarantee that she receives an annual disbursement to cover her official expenses. The Treasury is like the insurance company in the sense that it places the Estate profits in a consolidated fund and uses them as needed. Taxes paid by citizens are like the premiums the company’s other clients pay. The one big difference here is that the company, the Treasury, always comes out on top, since the annuity is only a percentage of the annual lump sum. But what happens if the Treasury spends more than it takes in? Does that mean that the Treasury’s other clients, the taxpayer, are on the hook for the Queen’s Grant? Only if you also think that an insurance company’s other clients are paying for your annuity with their premiums.

 

 

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