David Cameron’s government has announced sweeping changes to the way in which Britain’s Queen Elizabeth II and her family are funded.

The main source of royal funding has historically been the Civil List, which originated in the 18^th century when George III handed the Crown Estate over to the government in exchange for an annual payment.  Nowadays, the Crown Estate is a property portfolio whose assets are worth an estimated £6.7 billion.  Although the amount of the Civil List is traditionally set at the beginning of each reign, the growth of inflation has meant that, during the present Queen’s reign, it has usually been adjusted every ten years.

Since 2001, the Civil List has been set at £7.9 million.  According to the monarchy’s website, 70 percent of that money goes toward staff salaries, while the remainder is used to defray the cost of official functions, such as royal garden parties and incoming state visits.

The monarchy also receives annual grants-in-aid from government departments.  For example, in 2009-10, the Department of Transport provided £3.9 million toward the cost of travel, while the Department of Culture, Media, and Sport provided £400,000 for communications and £15.4 million for the maintenance of historic royal palaces.  Additionally, the monarchy has supplemented these sources of income by drawing on a cash reserve that accumulated during a period of low inflation in the 1990s. In 2009-10, the reserve contributed £6.5 million, but it is expected to run out by 2012.

All this money is used for official purposes and should not be confused with the sovereign’s personal assets.  The Queen’s personal income is funded by the profits from the Duchy of Lancaster.

Last week, the Chancellor of the Exchequer, George Osborne, announced that, starting in 2013, the Civil List and grants-in-aid would be abolished in favor of one annual payment called the “Sovereign Support Grant.”  This payment would be equal to fifteen percent of the profits from the Crown Estate during the previous two years.  As Osborne put it in his speech to the House of Commons, “the monarch will do as well as the economy is doing.”

Under the proposed formula, the Queen would receive £34 million in 2013-14, which is comparable to the total amount spent in 2009-10.  Furthermore, the fifteen percent formula will be reviewed every seven years by the Royal Trustees (the Prime Minister, the Chancellor of the Exchequer, and the Keeper of the Privy Purse) in order to ensure that it becomes neither too large nor too small.

In addition to consolidating royal finances, Osborne also said that the National Audit Office will be able to audit the assets used by the Royal Household for official purposes.  Furthermore, the monarchy’s finances will be subject to unprecedented parliamentary scrutiny, as the sovereign grant accounts will be laid before Parliament each year and the Public Accounts Committee will be able to hold hearings on royal finances.

MPs of all parties were broadly supportive of the government’s proposals, and there was unanimous praise for the Queen’s long record of service throughout her almost 60 year reign. However, the opposition Labour party’s financial spokesman, Ed Balls, expressed concern that, if the Crown Estate’s profits were to rise dramatically, it could create a windfall for the royal family that would prove damaging to their popularity. In such a case, he suggested that it would be prudent to allow the Royal Trustees to adjust the formula downward instead of having to wait the full seven years.

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