To be published as HC 1117-i

House of COMMONS



Scottish Affairs Committee

The Crown Estate in Scotland

Wednesday 8 June 2011

Roger Bright and Tom Mallows

Evidence heard in Public Questions 1 - 187



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Oral Evidence

Taken before the Scottish Affairs Committee

on Wednesday 8 June 2011

Members present:

Mr Ian Davidson (Chair)

Fiona Bruce

Cathy Jamieson

Jim McGovern

David Mowat

Fiona O’Donnell

Simon Reevell

Mr Alan Reid

Lindsay Roy

Dr Eilidh Whiteford


Examination of Witnesses

Witnesses: Roger Bright, Chief Executive, The Crown Estate, and Tom Mallows, Consents and External Relations Manager, The Crown Estate, gave evidence.

Q1 Chair: Welcome to this meeting of the Scottish Affairs Select Committee. This is the first evidence session of our investigation into the Crown Estate in Scotland. I envisaged that this would be an initial exploratory meeting. I know that we have already had an informal meeting with you, Mr Bright, which we found very helpful. We will go through some of the detail and place things on the record so that when we are meeting people as we travel around Scotland we are able to compare notes and so on and so forth. Some of the points that we raise might appear as if they are things we have covered already but we want to go through them for that specific reason. It would be helpful if you started off by telling us who you are and what your capacities are.

Roger Bright: Thank you very much, Chair. We are very pleased to have this opportunity to talk to you about what we do in Scotland. My name is Roger Bright and I am Chief Executive of the Crown Estate.

Tom Mallows: My name is Tom Mallows and I am the Consents and External Relations Manager based in Scotland.

Q2 Chair: Could you start off by telling us what the Crown Estate is, what do you do and what is the point of it?

Roger Bright: Basically the Crown Estate is responsible for managing what are described as the hereditary properties of the monarch. All our profits go to the Treasury and last year they were £210 million. Our portfolio consists of urban, rural and marine properties-land and buildings-right the way across the UK. We operate under a commercial mandate which is contained in the Crown Estate Act 1961. As a long-term business with a huge range of assets, many of them historic and in sensitive locations, we would say that we have a very keen sense of stewardship in how we manage those assets.

Q3 Chair: Could you clarify for us this question of the hereditary properties of the monarch? What does that actually mean?

Roger Bright: They constitute properties to which the monarch retains the title but from which she has surrendered the revenue at the start of her reign. This is an arrangement which began in 1760 when George III surrendered the revenues of these properties in return for what has become known as the civil list payment. The monarch was getting regularity and continuity of income through the civil list and in return he was surrendering the revenues from these properties. This is an arrangement that comes up for renewal every time there is a change of monarch. That renewal decision has to be taken within six months of a change of monarch. Ever since George III, each new monarch has elected to surrender the revenue from their properties in this way.

Q4 Chair: Let me clarify this question of the monarch’s properties. They are not the personal property of the monarch.

Roger Bright: No; absolutely not.

Q5 Chair: Are they the Estate’s property?

Roger Bright: That is an interesting question. Another way of describing them is that the monarch holds them in trust for the nation.1

Q6 Chair: If we decided to become a republic, what would happen to the Crown Estate?

Roger Bright: I don’t think I could speculate on what might happen in those circumstances. A decision would need to be taken as to what should happen.

Q7 Chair: But if the Crown went off to a family home in Germany-and I am glad to have a delegation from Bavaria in the visitors’ gallery-would the properties go with her, would the right to access the money go with her or does it remain with the country?

Roger Bright: I am not absolutely certain of my ground here. This is not a circumstance that I have contemplated, but I would have thought that since they form part of a deal initially with Parliament and the Government, and the surrendering of the revenues was given in return for the civil list, in those circumstances there would obviously need to be a discussion presumably with the monarch as to what became of those properties.

Q8 Chair: What would happen to the Crown Estate properties in Scotland if Scotland became independent? To whom would they belong?

Roger Bright: That also is an interesting question.

Q9 Chair: That is why I am asking you these questions.

Roger Bright: It would depend upon the basis on which Scotland became independent. There has been talk, as far as I am aware, that one model of independence has the Queen remaining as Head of State in Scotland as well as in the rest of the UK. I guess that would suggest that in that eventuality those assets might well remain hereditary properties.

Q10 Chair: I put it to you at the very beginning that this question of ownership is key to the question of control. The delightful obscurity with which this is cloaked makes it much more difficult to democratically control both the Crown Estates themselves and any money that comes from them. When dealing with the royals and their finances in the Public Accounts Committee, we were always struck by the extent to which it was made deliberately obscure by royal bureaucrats in order to try and avoid any scrutiny. Is that what is happening here?

Roger Bright: Chair, I would say very definitely not. We seek to be as transparent as possible. I am an accounting officer. I account to Parliament for the stewardship of these assets and the revenues that come from them. The revenues that come from them, because they go to the Exchequer, are public money. We have the Crown Estate Act 1961 which is pretty clear in its provisions. It vests in us what are described as all the powers of ownership but we do not have actual ownership of the assets. We have all the powers of ownership, which enables us to manage this as a portfolio primarily of investments. It places a duty on us to maintain and enhance the assets and the value of them and the return that we get from them.

Q11 Chair: This question of ownership and control is something to which we will probably return. When we were drawing up the terms of reference for the consultation there were a number of points that we asked people to comment on. We have agreed that we would want to put these to you in order to get responses from yourselves. The first of these is, do the Crown Estate Commissioners serve a useful purpose in Scotland?

Roger Bright: We would say that we do. We manage our assets in accordance with a commercial mandate and we seek a commercial return from them. We are quite clear that we are a long-term landowner-forgive me if I use the term "owner" because it is a convenient shorthand-and we operate in the long-term interest. That is all about making sure our assets are of good quality, sustainable and they deliver sustainable sources of revenue.

The other thing is that because of our long-term ownership the fact that we are, for example, not a quoted public company and we are not chasing a share price enables us to take a long-term view about the best way of maintaining and looking after those assets. We are not chasing, if I can put it like this, a "short-term buck".

I think, too, because we are a UK-wide body, we are able to make capital available from elsewhere in the UK to invest in Scotland. Certainly the investment that we have undertaken in Scotland has been possible because of the capital that we are able to release from assets elsewhere in the UK. I think also because of the expertise that we have, particularly in relation to marine and offshore renewable energy, we are able to bring to bear the benefits of critical mass. We have accumulated in the last two or three years a very considerable body of expertise in that field. We can bring those to bear for the benefit of Scotland. I would argue that the Crown Estate Commissioners do have a useful purpose.

Q12 Chair: The next point we asked people about was what is, or should be, the role of the CEC in investing in Scotland. You have covered much of that already.

Roger Bright: Yes.

Q13 Chair: The next point is the legacy of the CEC. What do you see as being the legacy, both at the moment and going forward?

Roger Bright: Perhaps I can just talk about where we are at the moment. There is a lot of focus at the moment on our marine holdings, understandably so, and particularly because of the prospect of the substantial development of offshore renewable energy. We are also responsible for about 90,000 acres of agricultural land in Scotland which are in five large estates and just under 200 tenanted farms.2

In that area we are regarded as a pretty good landlord. We were one of the first landlords to introduce a new type of tenancy that was introduced by the Scottish Government earlier this century. These are tenancies that provide greater certainty for agricultural tenants. They replaced the limited duration tenancies. We have also been active in helping new entrants come into agriculture. In estates like Glenlivet we have put a lot of effort into developing ancillary activity on the estate-in particular tourism, mountain bike trails and so on and so forth. We would say certainly on our rural estate that we have a pretty good record, we are a good landlord, and if you ask the majority of our tenants they would probably endorse that. I would like to think we have set good standards for agricultural land management.

If I turn now to the marine estate and the offshore legacy there, going forwards anyway, we have worked very closely with the Scottish Government in their promotion both of offshore wind and also wave and tidal energy. You are probably aware that we have granted 11 agreements for lease for wave and tidal devices in Pentland Firth and Orkney Waters. It is the first such round in the world and it has enabled Scotland to be right at the front of the pack in the development of wave and tidal energy.

We are also working closely with the Scottish Government in the development of offshore wind. Again, that promises to be very productive and very successful over the coming decade. We have certainly played a key part in working with the offshore wind industry and with developers in helping them enter this market. There is a strong legacy there.

Another area where we have played a useful part is in the development of the aquaculture industry. That is certainly now a very well-established industry. That began in the late 1970s, early 1980s, and that was an industry that we helped nurture. It has not always been completely free of controversy but nevertheless it is now well established. Amongst other things, we have funded research into various aspects of aquaculture to help support the industry and improve its competitiveness.

I would say that on a whole range of fronts we have played a very positive part in helping various aspects of the Scottish economy and we are very much committed to continue doing that.

Q14 Chair: Moving on, are the current management, administration and accountability arrangements of the CEC appropriate?

Roger Bright: I would argue in principle, yes, they are. I am formally accountable via the Treasury to the Westminster Parliament. As I mentioned a moment ago, I am an accounting officer. Our annual report is laid before the Westminster Parliament. I can be called before the Public Accounts Committee and the Treasury Select Committee and so on, and I think that is right. What I would also say, though, is that we are very conscious that we work across the UK. We work in all three devolved Administrations. While we are not formally accountable in the statutory sense to the devolved Administrations, we certainly seek to work very closely with them. We have always said that we seek to work with the grain of Government policy and that means both at the UK level and at the devolved Administration level.

Perhaps I could just say a little bit more about the basis on which we are constituted. It is an important principle that we are established essentially as a trust and at arm’s length from central Government. There is a history behind this. I can, if the Committee wish, provide further detailed background on it. It goes back to something called the Crichel Down affair in the 1950s, where at the time Government essentially got too entangled with the Crown Estate’s affairs. It led to a scandal and the Minister having to resign. Out of that came the Eve Report which recommended that the Crown Estate should be at arm’s length with a measure of independence and freedom to manage the assets as they judged appropriate in pursuit of their commercial mandate. As I say, that does mean that we are at arm’s length from central Government. Whilst we share with central Government our strategy and our principal objectives, central Government, particularly in the form of the Treasury, does not seek to micromanage us or to get involved in detailed operational business decisions.

Q15 Lindsay Roy: In the last year how often have you been in attendance at the Treasury or a Treasury Select Committee and been held to account? If so, how robust has that accountability been?

Roger Bright: Since the last election I have had meetings three times with the Economics Secretary to the Treasury, Justine Greening. I have had a number of meetings with Treasury officials. We have a mixture of more formal meetings and informal meetings. We meet the Treasury formally to talk about our corporate plan for the year ahead and to discuss with them the financial targets that we are aiming to deliver.

In March last year, shortly before the general election, I also appeared before the Treasury Select Committee, who were conducting an inquiry into the Crown Estate. I would say that these accountability arrangements, as far as I am concerned, are robust. I am extremely conscious of my accounting officer responsibilities. I am very well aware that the revenues that we deliver to the Treasury are essentially public money because that is where they are going and they need to be applied in accordance with the terms of our governing legislation. We are audited by the National Audit Office. One of the things that they will want to do, as Mr Davidson will remember from his time at the PAC, is ensure that we have acted within our powers and not exceeded them.

Q16 Lindsay Roy: Is one of the outcomes a summary statement of agreement? You said you put forward a plan.

Roger Bright: Yes, indeed. We have a memorandum of understanding with the Treasury which sets the framework for our dealings with the Treasury. That is available on our website. If it would help the Committee, we can certainly provide a copy of that.

Lindsay Roy: That would be helpful.

Q17 Chair: You have never been in front of the PAC, though, have you?

Roger Bright: Not in this incarnation, no, I haven’t.

Q18 Chair: In what previous incarnation were you in front of them?

Roger Bright: Actually, I don’t know that I have been in front of the PAC. I used to work at one stage for the Financial Services Authority. I appeared before a Select Committee in that capacity. I must correct myself; I think it wasn’t the PAC but the Treasury Select Committee.

Q19 Chair: Generally, meeting the PAC is not something that people tend to forget. One of the things we may ask the PAC to do is to have a look at yourselves more widely because they have a wider remit than we do. The final point of the formal questions that we sent out was about how the CEC can best act in the public interest in Scotland .

Roger Bright: That is an interesting question. The first thing I would say-and I alluded to it in my introductory remarks-is that we regard it as very much a part of our DNA to act as a good corporate citizen. We believe very strongly it is the right thing to do and we also believe it is right for business. We have a very keen sense of our stewardship responsibilities, our responsibilities to our tenants, our stakeholders and the communities where we have a dominant interest.

I have to make it clear that the Crown Estate Act does not allow us to act in the wider public interest in a non-specific way. That means that everything we do has to relate in one way or another to those assets for which we are responsible. The Crown Estate has to manage its assets in a way that is consistent with the duty that is placed on it in the Act, which is to maintain and enhance their value and the return obtained from them. In pursuit of that mandate, we do very consciously seek to act in the interests of our tenants, the communities where we operate and our various stakeholders, provided we can be satisfied that there is a clear business benefit. If it would help the Committee, we can give several examples of where we do that.

Q20 Chair: This is one of the areas where I find it very difficult to understand what you are saying to us. You said you can’t take account of "the wider public interest in a non-specific way". I don’t understand what that means. I am aware that you gave land away for a Land Girls’ memorial. I can’t remember where it was. That seems to me to be an example of public benefit which clearly was permissible otherwise you wouldn’t have done it. If you can give things away, I find it difficult to see what there is that would be of public benefit that is excluded.

Roger Bright: I may ask my colleague Tom if he is able to add any further detail on that. The point is that we can, under certain circumstances, give land away but there has to be in our minds a clear business benefit. In this case the land was in Glenlivet.3 We were persuaded that it was in our broader interests as a dominant landowner in that area to take that particular action. It is about establishing and maintaining good relationships with a community where we are a dominant landowner. Tom, I don’t know if there is anything more you can add to that?

Q21 Chair: I am not sure I understand that either, but maybe Mr Mallows can clarify it.

Tom Mallows: In that particular case, if it would be useful to the Committee, we could write with the specific details around that instance. If we can give some other examples of how we can act while delivering our business objectives in the wider public interest, one is that we have a range of enabling actions in the area. I particularly work in the marine estate, which is a process of leading by example in relation to offshore health and safety. On the face of it, that doesn’t have a direct benefit. We don’t gain revenue directly from that particular enabling action. However, if it is to be successful, the offshore wind industry that will eventually succeed and provide revenue streams in the marine estate is arguably dependent entirely on a successful health and safety regime. Therefore, we can help facilitate that process.

Q22 Chair: Let me get this clear. You are saying that one of the public act goods you provide, in a sense, is operating a health and safety regime offshore. But that is the law.

Tom Mallows: No; I am not saying that. I am saying that we are facilitating the process.

Q23 Chair: What does that mean-"facilitating the process"?

Tom Mallows: There are three examples that I could take on that. One is that we have worked with the industry developers, and it is still a relatively young industry, to set up a reporting programme for health and safety incidents across the board. That is not something for which we have a direct responsibility, as the Heath and Safety Executive might do, but it is in the industry’s interests to ensure that good practice is delivered in that context. There is a wider public benefit from that process.

Q24 Chair: There were two others, I think you said.

Tom Mallows: Let me try and frame them better. The two others were providing best practice guidance documentation and protocols, so working up those protocols. The third one was employing within the Crown Estate offshore construction experts to facilitate that discussion between the different parts of the industries. There are not tangibles. We are not delivering the health and safety requirements in that context but we are facilitating good practice for our industry.

Q25 Chair: Coming back to the point where you are the dominant landlord and you are giving something away in order to establish good relationships, the sort of criteria that allowed that to take place hardly exclude anything.

Roger Bright: We would have to say that we look at every such proposal on its merits and we have to form a judgment as to whether or not it is something that is a good use of our funds and in a reasonably tangible sense has some link with our business benefits. Where we say we can’t act in a non-specific way-and this was raised at the Treasury Select Committee last year-is where we say it is difficult for us under the terms of our Act to contemplate putting moneys into a generalised fund which would be applied by a third party. We think that is probably a step too far within the Act.

Q26 Dr Whiteford: To pick up on the Treasury Report which came out in March last year, the key finding was: "Even within the current statutory framework the Crown Estate Commissioners have more flexibility to accommodate the wider public interest than either they or the Government appear to realise." That is what the Treasury Committee concluded last year. For me, that is really quite a challenging statement for Government and for yourselves. Do you think that is a fair assessment? How have you responded to the Treasury Committee’s finding?

Roger Bright: Dr Whiteford, if you will forgive me, there is a sentence that follows that which perhaps I may also quote. It went on to say: "We accept"-that is the Committee-"that it is very difficult for the Crown Estate Commissioners unilaterally to arrive at a significantly different interpretation of the balance it strikes between their duty to maintain and enhance revenue and the extent to which they can and should accommodate wider public interests as part of their regard to good management."

Q27 Dr Whiteford: Would you accept, though, that 50 years on from the legislation it might be time for it to get a bit of a dusting down and a bit of revision?

Roger Bright: The Committee then went on from that comment to suggest in their Report or to direct a recommendation to Government that Government should consider giving us a steer about how the public interest should be addressed. In the Government’s response to that they didn’t pick up that particular recommendation.

What I would say is that our mandate is set out in the Crown Estate Act, which has been determined by Parliament. It is not really for me to say how you, the parliamentarians, should change our mandate. If Parliament should decide to change our mandate, then of course we would work within a revised mandate, but I don’t think it is for us to suggest how our mandate should be changed.

Q28 Dr Whiteford: Have you had any discussions with the Treasury, or indeed with any of the devolved Administrations, on how you might go about establishing what the public interest might be? That is quite a difficult thing, as I think your earlier comments indicated. How on earth do you assess what is in the public interest? Is it putting statues up or is it granting leases for long-term economic development? Would that be helpful and have you done it?

Roger Bright: We haven’t had explicit discussions with the Treasury or the devolved Administrations about that particular point. I go back to what I said before, which is that we always seek to manage the assets for which we are responsible in a way which, as far as we possibly can, takes account of local stakeholder and local community interests. It is a judgment call as to how far away you can get from our core responsibility, which is to maintain and enhance the value of our assets.

Q29 Dr Whiteford: How would you say that balance was between the revenue-collecting side of your work and the public interest side of your work?

Roger Bright: I don’t know that I can answer that question specifically. What I can say is that we have a good record as being, and I used the phrase earlier, a corporate citizen. For example, we entered the Business in the Community’s Corporate Responsibility Index. We have just recently been given silver status, which is one below the top status. It is recognised that across a whole range of issues we do demonstrate a very strong sense of corporate responsibility.

The other thing I would say-and there is sometimes some misunderstanding about this-is there is a view that our approach is to maximise our revenue in every circumstance. That is not correct. We optimise our revenue. We are not under a statutory requirement to maximise our revenue and the Treasury does not expect us to maximise our revenue. We seek to optimise it. That means taking account of the circumstances in which we are charging, whether it is land or whatever.

There are two good examples of that. In the early days of the aquaculture industry, when this was a fledgling industry which was just trying to get off the ground, we were very careful to construct a charging regime which was going to give us a return on our asset but would enable that industry to develop and flourish. We are doing exactly the same thing with offshore wind. It would be extremely short-sighted from our point of view to kill the golden goose before it has even got airborne. As I say, the emphasis is on optimising our return. We take account of the circumstances.

Q30 David Mowat: I think the distinction between "optimising" and "maximising" is interesting, isn’t it? You could say "optimising" is the same as "maximising" over the long term. That is how I would usually hear that being used.

Roger Bright: I think that is right.

Q31 David Mowat: But the way you are using it isn’t like that.

Roger Bright: It is about developing a sustainable medium to long-term source of revenue. If you talk about straightforward commercial property, you can boost your return in the short term very easily by just squeezing the fruit until the pips squeak, but then you are left with an asset that is probably going to be devalued. Our focus is very much on nurturing long-term assets so that they are able to prosper and deliver a sustainable medium to long-term source of revenue. That is what we are about.

Chair: Leaving aside the fact that the golden goose doesn’t actually lay eggs while it is airborne, I turn to Lindsay.

Q32 Lindsay Roy: Is the distinction between optimisation and maximisation a critical criterion in terms of the valuation with the Treasury?

Roger Bright: It is very much a factor in our investment strategy and that feeds through into the revenue that we deliver.

Q33 Lindsay Roy: So you are asked in detail about why certain things have gone ahead in the way they have.

Roger Bright: We will take the Treasury through our investment strategy in a reasonable degree of detail and explain the rationale for it. Then we will talk to them about the revenue we expect to be able to generate from those assets over a one, two or three-year period. They will challenge us and question the investment strategy and whether it is soundly based. The Treasury understand that this is a long-term business and it is about looking after and nurturing assets for the long term so you have a sustainable, good-quality portfolio that delivers a sustainable, good-quality revenue stream.

Q34 Chair: I turn now to the question of the various investigations or discussion documents about yourselves so as to place things on the record and so that we can come back to them at a later stage. In relation to the Crown Estate Review Working Group from the local authorities, we have met Councillor Foxley informally and we intend to do so again. It would be helpful if you clarified for us your view of the report that they produced and whether or not you accept that that was a fair or unfair assessment of your role.

Roger Bright: That was several years ago now. I don’t think it was fair in every respect. I am trying to recall the details of it because I think that report was produced about four or five years ago now.

Chair: 2007.

Roger Bright: Yes; four years ago. In some respects I think it was unfair. My recollection was that it implied that we were driven purely by the pursuit of revenue return and that we did not have a good legacy as a landlord. I seem to remember, too, there were some inaccuracies in the report, but I would need to refresh my memory of that. The Crown Estate Review Working Group report served a purpose in the sense that it increased public awareness about the Crown Estate and, among other things, it led to an inquiry by the Rural Affairs Committee of the Scottish Parliament to which we gave evidence. Following on from that, I would say we appreciated that we needed to improve our stakeholder engagement in Scotland and provide more information about our activities. In that sense it had a positive outcome and it helped us raise our game, which we are keen to do.

Q35 Chair: If we meet the people who were involved in that now, do you think they will give you better marks than they did then?

Roger Bright: I would hope that they would give us better marks. I am sure you appreciate, Mr Davidson, that in some quarters there are people who have an "in principle" objection to the idea of land in Scotland being managed by a non-devolved entity, particularly when it comes to foreshore and seabed. I suspect people who hold those views will-

Chair: -never be reconciled. I think we are sufficiently experienced to distinguish between those who have an "in principle" objection to your existence and criticisms that are made about the way in which you conduct your business. You have outlined to us quite a strong case that you are benevolent despots. You have emphasised the benevolence. What we have heard from other people is the other element of that. We will judge that in due course.

Q36 Lindsay Roy: You may recall that Brian Wilson made a criticism of the Crown Estate Commission, saying it was a law unto itself. How did you respond to that? Was that at the same time as this report in 2007?

Roger Bright: There are a number of quite complicated issues here. I know that Mr Wilson has long been a critic of ours. He has criticised us generically and I suspect he may be one of those who has "in principle" objections to our being in Scotland. I know that he has in the past expressed concern about aquaculture on the west coast and in particular our granting of licences to fish farms, apparently against the will of the local community.

There is a slightly complicated story here but I will make it as simple as possible. Up until four years ago the Crown Estate found itself combining both the role of landowner-excuse my use of the term but you will understand what I mean-with that of regulator. We were effectively the planning authority for fish farms as well as owning the land. That was a role that we didn’t want and with which we were very uncomfortable. We pressed for years to have those roles separated. They were finally separated after a period of 20 years when legislation was passed in 2007 which transferred the responsibility to local authorities for agreeing to the siting of fish farms. That is a very important distinction which runs throughout all our holdings. We are a landowner or we act as a landowner. We are not a regulator. That is a very relevant point to offshore energy as well.

Q37 Lindsay Roy: Are you contending now that there is a genuine partnership between local councils and the Crown Estate Commission?

Roger Bright: We believe so. I would say, certainly in the Highlands and Islands, one of the things that we have been pursuing over the last year or so is the development of a memorandum of understanding between us and the seven Highlands and Islands authorities and Highlands and Islands Enterprise to try and ensure that we are able to work in tandem with their objectives so that the benefits of development of offshore renewable energy accrue to those Highland communities.

Q38 Lindsay Roy: That MoU is designed in part to engender further trust and confidence.

Roger Bright: Yes, absolutely. I would say across a whole range of our activities, not just in Scotland-and it is perhaps a slightly overused term-we work in partnership with a number of bodies, both private and public sector. If you are a long-term manager of assets you have to be able to work in partnership with stakeholders.

Tom Mallows: Might I just add something there? The offshore wind programme is a good example around Scottish waters of how things have moved on from the aquaculture industry. There are now regulators in place for these activities. Our role in the offshore wind programme was effectively as a delivery vehicle for entering these legal agreements that need to be entered with these developers. That was at the request of the Scottish Government. In 2007 we delivered how they asked us to deliver, which was very different from the position in which we found ourselves 20 or so years ago around the aquaculture industry.

Q39 Fiona O’ Donnell: Roger, when you were answering Lindsay’s question about Brian Wilson’s criticism of the Crown Estate Commission and the granting of a licence for a fish farm, you used the words that it was "apparently against the will of the local community". Does that mean that the Crown Estate Commission did not consult with the local community before granting these licences?

Roger Bright: This was a good few years ago. My understanding was that when we had this unfortunate combined role of owner and regulator there was a process by which we would publish notices saying that an applicant for a wind farm wanted to locate a wind farm in a particular place. We published notices in local newspapers, in the local post office and so on and so forth. I don’t think we were completely oblivious to local opinion, but what I would say is that things have moved on very considerably since then. That was 15 or 20 years ago.

Q40 Fiona O Donnell: I have to say that that is a charge we have heard again, though, repeated in evidence and submissions that we have received. Maybe it is something to which we could return once we have finished collecting evidence.

Roger Bright: I am not in any sense devaluing people who have genuine concerns in any way but some of these issues are quite old. They go back a good many years. We would argue strongly that we have moved on very considerably since then. In relation to aquaculture, a very important part of that was finally being relieved of having to be the regulator as well as the owner.

Tom Mallows: We voluntarily set up an interim scheme around the aquaculture programme for a number of years-I don’t recall the exact number-whereby we provided the local planning authorities with all the information for their advice. We effectively delivered what they determined in those situations. We recognised the need for that. There were a number of points to try and address that over the years.

Q41 Chair: To be clear, coming back to the point about whether or not you were oblivious of local opinion, the fact seems to be that you went ahead anyway. Is that right? There is a dispute about whether or not you were aware of local opinion, but even if you were aware of local opinion you went ahead and did what you wanted to do anyway.

Roger Bright: I don’t know that that was necessarily the case, Chair. There are hundreds of fish farms, as I am sure you are aware, and I am not aware that it is the case that-

Q42 Chair: In any event, your case is that you are now reformed characters. That is the case for the defence, isn’t it?

Roger Bright: Yes.

Q43 Chair: It’s a bit like Bart Simpson. "I didnae do it, but even if I did do it then I didnae do it now." That is the position you are adopting. It is worth clarifying that. There was then the question of the Calman Report and the Treasury Select Committee. I thought that one of the most interesting phrases from the Treasury Select Committee was that you "had been subject to remarkably little scrutiny". That probably is true and now you are having, as it were, a glut of it, which is, as I am sure you will appreciate, for your own good.

Roger Bright: Absolutely.

Q44 Chair: That is what we say to people in front of the Public Accounts Committee as we ll: "This is for your own help." You have seen all the material about the Scotland Bill. The thing that struck us about this was the ferocity and volume with which people have been addressing this issue in terms of not only the written evidence but people approaching us privately about it and speaking to us on these things. There is clearly a lot of ill-feeling out there about your role. We are here now to try and make sense of some of this.

Could we turn to the question of how you are run internally? I am not entirely clear how your Commissioners appear. I know that they are appointed by the Chancellor with the agreement of somebody else to the Queen and so on. How does a name emerge? I am not clear about the process, for example, by which a wealthy Kelso farmer is on a board looking after the coastline of the north of Scotland. There is not an immediate connection there. I am not aware of anybody up there knowing them, having voted for them or having had a say. How do these things happen? How do these people pop up?

Roger Bright: We are subject to the regime for public appointments that is set out by the Office of the Commissioner for Public Appointments. That means we have to follow a process which they specify. We advertise when a Commissioner vacancy comes up and we go through a recruitment process on which an independent observer from the Office of the Commissioner for Public Appointments sits. That results in an assessment and an interview process. There is a full job specification and role profile produced for that. Out of that a recommendation for an appointee is made. That recommendation then goes via the Secretary of State for Scotland to the Chancellor of the Exchequer, to the Prime Minister. If the Prime Minister endorses it, he recommends it to the Queen.

Q45 Chair: How many people applied the last time?

Roger Bright: I am not sure if I can remember offhand. The last two vacancies that we filled were from 1 January this year. They were for two people with knowledge and experience of renewable energy.

Q46 Chair: This is specifically for the Scottish Commissioner. In a sense we have taken a self-denying ordinance that we are not going to be looking at the role of the Crown Estate Commissioners generally across the UK as a whole. We are specifically restricting ourselves to Scotland because that is our remit. How many people applied for the Scottish Commissioner and who interviewed?

Roger Bright: I can’t remember offhand, I am afraid. There were a healthy number, I would say, but I can’t remember.

Q47 Chair: What is "a healthy number"?

Roger Bright: 20 or 30 maybe.

Q48 Chair: Who then interviewed these people? Who shortlisted?

Roger Bright: We used a firm of search consultants, namely Odgers. We used their Glasgow team. In tandem with advertisements which were placed in various parts of the Scottish media, we used Odgers’ Glasgow office to help us search out potential candidates. They took delivery of all the applications. We saw all the applications and working with them we went through the process of longlisting followed by shortlisting, which I am sure you are familiar with, Mr Davidson. There is a selection panel for these appointments which is chaired by the Chairman of the Crown Estate. There is usually one other non-executive member of the Crown Estate, another Commissioner, who sits on the panel. I sit on the panel. The Treasury are represented on the panel. As I say, there is an independent observer who observes.

Q49 Fiona O’ Donnell: Can I quickly check this? When you said that Odgers searched out candidates, does that mean they actively approached people and encouraged them to apply?

Roger Bright: That is my understanding. That was one of the things that they did.

Q50 Chair: It is a pretty self-perpetuating process really, isn’t it? People like yourself appoint people like yourself to be on a board that then selects more people like yourself.

Roger Bright: I would say that the Treasury are represented on this. There is also, as I say, an independent observer. The process is then overseen by Ministers in the UK Government.

Q51 Chair: "Overseen by Ministers". That is a nonsense in a sense. None of them has ever been along to any of the meetings. In theory, they are there represented on earth by the Treasury, but it is not an active role by Ministers at all. There has been no political involvement in this in any shape or form, has there?

Roger Bright: There is no political involvement but the recommendation for the appointment has to be approved by Ministers.

Q52 Chair: Has a recommendation ever been turned down?

Roger Bright: Not to the best of my knowledge.

Q53 Chair: So that is a meaningless step, basically.

Roger Bright: I don’t think I could agree that that is the case.

Q54 Chair: If you have a 100% success rate, it does call into question whether or not the Ministers actually exercise a meaningful role, does it not?

Roger Bright: But you could argue that the selection panel has consistently produced good quality candidates.

Chair: Indeed, and no doubt you would.

Q55 Dr Whiteford: Can I ask if the Equality Act and its terms that apply to other parts of the public sector apply to yourselves? The organogram is very helpful but I can’t help noticing that all the senior management in Edinburgh are men. It just seems to me that that wouldn’t be happening in other public bodies since the Equality Act came in. I just wonder what steps, both with the Commission and with staff appointments, there are to ensure that equality and diversity policies are applied.

Roger Bright: We are of course subject to the Equality Act. As a public body in that sense we are certainly very aware of our responsibilities there. We monitor by gender and by ethnic group where people are at different levels within the organisation.

Q56 Dr Whiteford: How many Commissioners come from an ethnic minority or are women?

Roger Bright: At the moment we have one of seven non-executive Commissioners who is an ethnic minority. We have one who is a woman.

Q57 Jim McGovern: One of each out of how many?

Roger Bright: The total board size is eight. I am a member of the board. So there are seven non-executive slots on there.

Q58 Jim McGovern: One woman.

Roger Bright : At present.

Dr Whiteford: That is worse than us.

Jim McGovern: Worse than the SNP, you mean.

Roger Bright: Up until the end of last year there were actually two women on the board, but one of the women candidates stood down.

Chair: We turn now to some of the formal questions we have been given by staff to raise. Fiona, do you feel that yours are covered already?

Q59 Fiona O’ Donnell: There is one that wasn’t raised by staff. Going back to the Treasury Select Committee Report, which was only a year ago after all, that looked across the UK but there were a number of submissions from Scotland which all had negative things to say about the Crown Estate Commission. You may expect people to rush forward more to say negative things. The only submission which was entirely positive about the Crown Estate Commission was the Crown Estate Commission’s own submission. Can you understand that that might lead people to think of you as either being complacent or even arrogant in terms of your self-perception?

Roger Bright: I can see that you might well say that. However, I would dispute very strongly that we are arrogant; nor are we complacent. We are extremely sensitive to the context in which we operate and the various stakeholders that we have to deal with. That said, I would say that on many fronts we have a good story to tell in Scotland which we think does not get very much air time. We thought it was right to point out the good things that we do, which if I may say so we don’t get much credit for.

Q60 Fiona O Donnell: Do you not see, though, that maybe setting that stage which was entirely positive almost prompts more negative responses? It is almost like the Crown Estate Commission saying, "We can’t think of any ways that we could do our job better." That might be the perception.

Roger Bright: I take the point that you are making obviously, but I would certainly say that is not where we are. We are always seeking to improve. We would not say that we are perfect. We are very receptive to suggestions and proposals as to how we might improve, absolutely. I am certainly not a complacent chief executive, nor an arrogant one.

Q61 Fiona O’ Donnell: That is really pleasing to hear. In the submissions that came from Scottish stakeholders, a number of them vented frustration about the way in which the Crown Estate Commission engaged with them. That is a theme, I have to say, which a year on is still running through the submissions we are receiving. What has happened since the Report of the Treasury Select Committee? In what ways have you changed and what are the further plans?

Roger Bright: I would say that we have put a huge amount of effort into engagement with the Scottish Government and with Marine Scotland in particular. Tom, who handles a lot of that in Edinburgh, would be able to provide you with more chapter and verse on that. I would say we bend over backwards to engage with the Scottish Government and its agencies where they interact with our work.

We are certainly trying extremely hard to engage with local authorities. Indeed, it pre-dated the Treasury Select Committee, but we had begun these discussions on our initiative with the Highland Councils trying to agree the terms of a memorandum of understanding. We will continue to do that. Engagement is absolutely the name of the game. We understand very much that we have to communicate clearly what we are about and, at the same time, listen to what people have to say. We are very well seized of that. As I say, I don’t in any way dismiss lightly criticism that is made of us but I suspect legacies take quite a long time to change, if that is a legacy. We will continue to work at it.

Q62 Fiona O Donnell: Everyone would acknowledge that there are problems with the management of the Crown Estate Commission in Scotland. Often in these circumstances politicians say, "It’s just that we are not communicating well." Do you think those problems are about communication and perception or are they about management, structure and organisation?

Roger Bright: It is quite difficult to say. There is a point of view which fundamentally objects in principle to our being in Scotland as a UK body. That objection in principle is probably going to be impossible for us to resolve. Communication and engagement is absolutely vital, but I think it is also about being proactive and making sure that we listen to our tenants and those with whom we do business. There is a very good example of that in relation to offshore energy, where we are extremely active at the moment not only with the Scottish Government but also with the offshore wind and wave and tidal development industry. Equally, we are putting a lot of effort into improving our contacts and communications with ports and harbour authorities. We are also aware that that is an area where we have been criticised, perhaps not always fairly in the past, for not being as communicative or as helpful as they would like us to be. I would say that across a range of fronts we are doing everything we can within the framework within which we have to operate to try and improve our perception in Scotland.

Q63 Fiona O’ Donnell: Can I just say, Roger, it is encouraging, but it is also imperative that the Crown Estate Commission’s only line of defence isn’t, in the words of a Carry On film, "Infamy! Infamy! They’ve all got it in for me." I will conclude my remarks at that stage.

Tom Mallows: Chair, for the sake of a good record, I suppose, certainly the Scottish renewables comments in relation to the Treasury Select Committee were fairly positive about the work that the Crown Estate is doing in Scotland. More recently we have had comments from the likes of the Scottish Council for Development and Industry acknowledging explicitly the improvements that have been made to how we have approached our business in Scotland over the last three years, acknowledging that their members have noticed and have commented to them on those improvements. These are key to Scotland’s economy. The points that Roger is making aren’t just words. There is a lot to back these up.

Sitting alongside that are the offers that we made even before the Treasury Select Committee. These were annual offers to the First Minister in Scotland; to the Rural Affairs and Environment Committee; the Energy, Economy and Tourism Committee; and to COSLA; to meet with them on an annual basis to explain our Scottish annual report which we publish and to set out what our plans are for the following year. We received only one response, which was that they didn’t want to see us at that particular time. You can keep on knocking on the door but-

Q64 Chair: It would be very helpful if you would let us have a copy of the letters that were sent to whom offering meetings and the fact that there was no response. I take it that is fairly recent, is it?

Tom Mallows: Since 2009 we have explicitly offered that dialogue around the annual report.

Q65 Chair: Let me just get this clear. You have written to the First Minister and various Committees of the Scottish Parliament since 2009 and have had no reply, save one, saying that they didn’t want to meet you.

Roger Bright: Apart from one Committee, which I think was the Energy and Environment Committee, which thanked us very much but they didn’t want to meet us. The Rural Affairs and Environment Committee are slightly different because we appeared before them. We went back to them a year later and said, "Would you like us to report on what we’ve done since we last appeared in front of you?", and they said, "Thank you, but no thank you." To the best of my knowledge, we have not had a response to our letters to the First Minister, which our previous Chairman sent in 2009 offering an annual meeting.

Q66 Chair: Do you know it was received? Was it registered?

Tom Mallows: We understand it was received, yes.

Q67 Chair: It was definitely received. I find it surprising, given that there has been such a fuss about the position of the Crown Estate, that having been invited to meet you these offers were not taken up.

Tom Mallows: If the Committee is interested we will provide copies of those letters.

Chair: I did ask for that and therefore I am presuming that will take place.

Q68 Lindsay Roy: Have you undertaken any other independent research with clients? As Members of Parliament, we are inundated with correspondence asking, "How well are you acquainted with the following companies? How well do they communicate with you?" Have you done something like that with the Highland Council and with various aquaculture and renewable energy companies?

Roger Bright: Tom, are you able to help with that one?

Tom Mallows: There are a number of ways in which we engage on those levels. The best way to look at it is to split the industry engagement, which has elements of our contractual tenant and lessee relationships with the aquaculture industry in the event that we carry out an independent review of the rentals. That involves consultation with the industry. That is one way of understanding it.

Q69 Lindsay Roy: What I am asking is, is this systematic or is it ad hoc?

Tom Mallows: What in particular, sorry?

Q70 Lindsay Roy: The communication with potential clients. Is it a systematic approach or is it ad hoc, as and when it seems to fit a purpose?

Tom Mallows: I see what you mean. We have a systematic approach to it on a number of levels as well as a responsive ad hoc approach, as you would expect, if a problem is flagged up. With MSPs, for example, we stand ready to meet them. On a more structured approach with all of our renewables developers, soon hopefully to be tenants if the developments go ahead, we have collaborative developers’ forums where we meet. With the wave and tidal developers in the Pentland Firth and Orkney Waters we meet with them explicitly on a regular basis to do a number of things, including understanding and gaining feedback.

We also have a group called the Scottish Liaison Group which meets three times a year. That has around 20 or 22 members which includes representatives of all our tenants: Scottish Renewables, Scottish Salmon Producers’ Organisation and COSLA. That is a structured way of seeking feedback. So, yes, that is a specific vehicle in Scotland for engaging with all of those interests.

Q71 Chair: How many times has that group met?

Tom Mallows: It meets around three times a year.

Q72 Chair: How many years has it been going for?

Tom Mallows: It has been going since 2009 as well, I believe.

Roger Bright: We established that after we had been in front of the Rural Affairs and Environment Committee. We identified that we needed to establish, as Mr Roy said, a more formal liaison group.

Chair: What would be helpful is if you could let us have a copy of the minutes of that so we can see the sort of issues that come up, if that is possible.

Q73 Lindsay Roy: Can I also ask about the Crown Estate Commissioner and the Scottish statutory appointment? What, if any, difference is this likely to make in practice to the management of the Crown Estate in Scotland?

Roger Bright: This is the provision in the Scotland Bill which will specify that Scottish Ministers will be consulted before his or her appointment in future. I would have to say I very much welcome this. We have had a Scottish Commissioner for a good many years, as I am sure you are aware, but it has been a non-statutory appointment. It is an appointment we have chosen to make. The Scottish Commissioner fulfils an important role on our main board in ensuring that Scottish conditions and considerations are taken into account when the board takes its decisions. He also chairs the Scottish Liaison Group that we have just been talking about and he chairs our own internal Scottish Committee. He has a number of important roles within the Crown Estate. He is also an ambassador for us in Scotland and he will meet Ministers. Having the Scottish Government as a party to his or her appointment in future will be very valuable. The mere fact of making it a statutory appointment is very much to be welcomed. It cements and consolidates his position.

Q74 Lindsay Roy: What, if any, further discussions have you had with the Scottish Office or the Scottish Government about further measures to improve your accountability? We know you have been with the Treasury Select Committee. Have there been recent discussions with either of these two?

Roger Bright: Since the last general election I have had at least four meetings with Michael Moore, the Secretary of State for Scotland. Those have been very valuable. It has partly been an opportunity for us to explain to him what we do and how we go about it, but it has also been very valuable in terms of having his perspective of how we are perceived and how we can improve the way we are perceived in Scotland. He has placed a strong emphasis on the need to improve our transparency where we can and also to strengthen informal lines of accountability. Formally we have to be accountable to the Treasury. We can’t be formally accountable to two masters.

Q75 Lindsay Roy: Is that why, in 2002, you stopped treating Scotland as a separate management unit?

Roger Bright: No, it isn’t why we stopped treating Scotland as a separate management unit in 2002.

Q76 Lindsay Roy: It seems strange when there is a Scottish Parliament.

Roger Bright: Perhaps I could just explain the background to that. It basically goes back to our business model. We are a UK-wide business with a UK-wide investment strategy. At that time it was becoming apparent to us that the structure we had meant that we were not achieving economies of scale that we might have been able to achieve. It also meant that we were not able to make use of expertise right the way across the business very effectively. More to the point, in 2002, we were in the early stages of the offshore wind industry which began to emerge in 2001. It was apparent to us that in order to help this industry develop and play our part in that we needed to operate on a UK-wide basis. That was the set of decisions that led us to integrate the management of our assets in Scotland into UK management.

At the same time we moved from a rather grand office on Charlotte Square into more modern fit-for-purpose offices around the corner in Bell’s Brae. At the time that we did that there was also a reduction in staff in our Edinburgh office, but since then we have been recruiting rapidly, particularly in the field of marine renewable energy expertise. We now employ more staff in Scotland than we were employing in 2002. That is the course that that has taken and those are the reasons why.

Q77 Lindsay Roy: Finally, would reinstatement of the previous accounting system and appointment of a member of staff as head of operations improve accountability and generate further confidence in Scotland in the Crown Estate?

Roger Bright: Of course I am aware of that argument. I am not altogether sure that it would because, as I say, the structure of our office in Scotland reflects our business model, which is a UK-wide business model underpinned by a UK-wide investment strategy. It depends on what issues you are trying to address. If the issues are questions of control of the Crown Estate in Scotland, if they are the retention of Crown Estate revenues in Scotland, then I don’t think a change like that would address those issues. The important thing we have to do is to continue to do absolutely everything we can, as I have been saying, to improve our engagement with the Scottish Government, with Scottish local authorities and with other Scottish stakeholders, and continue to strive to do a better and better job. Within the framework within which we have to operate that is the right way for us to approach that issue.

Q78 Chair: I take you back to the question about the appointment and about it being a statutory appointment. What happens if the Scottish Government say, "No, we don’t accept this person because he is another one of the same-another establishment figure"? What then happens? Do they have the right to appoint their own person or does that go back to you to have another go?

Roger Bright: I am afraid I don’t know the answer to that, Mr Davidson. We have not yet encountered that situation. It is a provision in the Scotland Bill.

Q79 Chair: No; that is right. Are your appointments not statutory appointments at the moment, in the sense that they go through the Chancellor? If the Chancellor turned round and said, "No, I’m not taking him, he’s got convictions for X, Y or Z" or "He’s a person of whom I disapprove", it would be sent back again for you to try again, wouldn’t it?

Roger Bright: Yes. All our board members are statutory appointees under the Crown Estate Act.

Q80 Chair: The only difference now is that the Scottish one has to go through the Scottish Parliament and be statutorily appointed through that route.

Roger Bright: As I understand it, the Scotland Bill amends the Crown Estate Act. It says "there shall be a Scottish Commissioner". At the moment, as you know, that is not the case. It says that his or her appointment shall be made "after consultation with Scottish Ministers". I think that is the wording. That presumably will be a matter between UK Government Ministers and Scottish Government Ministers. I don’t think I can speculate how that mechanism is going to work in practice.

Q81 Chair: But is it your understanding that the Scottish Ministers would have a veto over the Scottish Commissioner?

Roger Bright: I don’t have a precise understanding of how the consultation with Scottish Ministers is envisaged at this stage. It will be conducted by UK Ministers.

Q82 Chair: So at the moment UK Ministers have a veto, which has never been exercised.

Roger Bright: They could refuse a recommendation, so it is effectively a veto.

Q83 Chair: That is a veto. We are unclear at the moment as to whether or not the Scottish Government would have a veto over the Scottish Commissioner.

Roger Bright: I don’t know, unless there is something you can add to that, Tom.

Tom Mallows: As a point of clarification, this is still a Bill going through here so we don’t know how this is going to act in principle. That would be for the Scottish Government and the UK Government to agree on. We wouldn’t have an input into that.

Q84 Chair: I wasn’t clear whether or not anything had been communicated to you about that at all.

Tom Mallows: No.

Q85 Chair: I come back to the points that you made in response to Mr Roy about the way in which you stopped treating Scotland as a separate unit in 2002. That does rather look like a manoeuvre to avoid accountability in Scotland, doesn’t it? Only a little while after the Scottish Parliament is established, you decide to restructure yourself so that you don’t have a separate Scottish structure which could be held accountable or be embraced more closely by the Scottish Government than before. How do you respond to cynics such as those that might raise these points?

Roger Bright: All I can say, Mr Davidson, is that I can give you an absolute assurance that that is not the case and that was not the intention. It would not be in our interests to worsen our relationships with the Scottish Administration.

Q86 Chair: To be fair, at that time I don’t think you could have done much to worsen your relationships. You were seen as being pretty bad folk altogether. It comes back to the point that I made at the very beginning about royal finances in any shape or form always being made as obscure as possible in order to diminish any possibility of accountability. It does look to me, and to the people that raised this with me, that this is a classic example of that. You restructured in order to avoid accountability.

Roger Bright: Absolutely not. I can give you a cast-iron assurance that that was not the driving force. It was to do with how we run our business to optimum effect.

Q87 Chair: Following on from Lindsay’s point, it is presumably possible, if requested, that you could reassemble the Scottish accounts since all the figures are there. It would be possible to produce all of that in a way that could be examined.

Roger Bright: Yes.

Q88 Fiona Bruce: My question is also on accounts. I would like to ask you about the capital funding of the Crown Estate. In your report to us you say, "The Crown Estate has been able to invest £16 million in our marine holdings in Scotland over the last five years." Was that all capital investment?

Roger Bright: To the best of my knowledge it was capital investment, yes.

Q89 Fiona Bruce: I want to seek clarification on this because you have also provided us with figures for capital investment over the past five financial years. The total capital investment in the whole of Scotland was £16 million. Does that mean that all of your investment of a capital nature in Scotland over the last five years was in the marine area?

Roger Bright: It depends how you define "capital". Repairs and maintenance expenditure, which is also something that we incur particularly on our rural estate, will generally tend to be revenue expenditure but you could nevertheless say it is investment. A recent example of that was following the severe winter of the winter before last a lot of our properties in Glenlivet were very severely snow-damaged. We spent over £1 million in repairs and maintenance for that. From time to time we do undertake capital investment on our rural estate. The majority of what is pure capital will tend to be on the marine estate.

Q90 Fiona Bruce: That is very helpful. Obviously a lot of maintaining your capital assets comes out of revenue and that is how you have treated it in the accounts.

Roger Bright: Yes.

Q91 Fiona Bruce: My next question relates to the capital raised over the last five years in terms of Scottish receipts. You indicated earlier on in answers to questions from the Chairman, "We are able to make capital available from elsewhere in the UK to invest in Scotland." My understanding was that this is what you do. Would it be fair to say that that is a trend, by and large?

Roger Bright: There will be a trend of increased capital investment in Scotland because of the projected development of offshore renewable energy over the next five to 10 years. We are envisaging that we will be spending about £20 million over the next five years. That is more than we spent in the last five years.

Q92 Fiona Bruce: And that will be capital investment.

Roger Bright: Yes.

Q93 Fiona Bruce: It does seem to me as though there is a balance to be redressed. Over the last five years the capital receipts have been something over £70 million and the investment of a pure capital nature, as you have said, is around £16 million.

Roger Bright: Yes.

Q94 Fiona Bruce: You might possibly have explained that quite wide discrepancy earlier on. Was it the sale of the property at Charlotte Square in Edinburgh that you referred to?

Roger Bright: No, it wasn’t. Perhaps I could explain this because it is quite important and it again goes to our business model and the fact that we have a UK-wide investment strategy. The purpose of the investment strategy is to ensure that we have a mix of assets across the UK which best enable us to meet our commercial mandate, which is to deliver a good-quality, long-term sustainable source of revenue. What that means is that at any point in time we are disposing of some assets and investing in others. We are also investing in developments as well.

In the last financial year for which we reported we conducted transactions, both buying and selling, to a total value of over £800 million across the UK. The big capital receipt that is identified from our Scottish assets relates to the sale of two particular buildings in Edinburgh. One was a small retail and office unit on Princes Street. Much the largest was the sale of an office building in Princes Exchange in Tollcross.

However, if you go back 10 years-just after I joined the Crown Estate in fact-we funded the development of the Princes Exchange building with capital at a cost of about £60 million, which again was capital released from our English assets. The capital that funded the development originally came, as it happens, from south of the border. The Princes Exchange building in terms of our investment strategy had reached a point where it was not meeting our needs so it was time to dispose of it. That is what any investment fund would do. It is constantly looking at its assets to see whether the balance of them is going to deliver the performance that we are looking for. That explains that capital flow.

Q95 Fiona Bruce: What you are saying is that this is perhaps a blip rather than a trend.

Roger Bright: Yes. It was a decision taken on pure commercial investment criteria. This was an asset that from our point of view was getting to the end of its usefulness in terms of supporting our commercial mandate and delivering revenue. It was time to sell it and reinvest the capital.

Q96 Fiona Bruce: What did you sell the Princes Exchange for, as a matter of interest, bearing in mind that you used £60 million worth of assets?

Roger Bright: I think the price was in the region of £55 million.

Q97 Fiona Bruce: So there was a net loss of how much?

Roger Bright: There wasn’t a loss. We have sold it for less than we put into it but the reason is that the whole market had moved.

Q98 Chair: So that is a loss then. That is the whole principle of loss, isn’t it-that you sold it for less than you bought it for?

Roger Bright: Yes, but by the same token, in the particular circumstances of the market at the time, we would have been able to use that capital to buy other assets whose price had similarly decreased.

Q99 Chair: I understand that, but let us be clear. Fiona did ask, "So you sold it at a loss then?" and the answer is yes, you did.

Roger Bright: If you compare the purchase and the sale price, yes, that is right.

Q100 Chair: What other way is there of doing it?

Roger Bright: What I am trying to say is that we don’t hold a building like that as an operation-

Chair: I understand that.

Roger Bright: We hold it as an investment, and we have to operate in the market as the market moves. It is like selling and buying-

Q101 Chair: I completely understand that, but I think it would be much better if you just said, "Yes, we sold it at a loss and we were able to buy something that was distressed and we will make even more money out of that in the future." I can understand that. The point is that the figures we have demonstrate that over the last five years capital investments in Scotland were £16 million and capital receipts in Scotland were £71 million. Therefore, it does look from that as if you were taking more out of Scotland than you were putting in, thereby somewhat responding to the point that you make, "No, no, it is a one-way traffic. Money comes into Scotland." I think we understand the fact that you sold something at a loss and used some of that money on this.

Roger Bright: Thank you because you have given me the opportunity to explain this. We don’t have separate investment strategies for different parts of the country. We have a UK-wide investment strategy.

Q102 Fiona Bruce: You bought Princes Exchange a decade earlier.

Roger Bright: We pre-funded the development of the site in fact.

Fiona Bruce: A decade earlier.

Roger Bright: Yes.

Q103 Fiona Bruce: So it was over that period that the loss was made.

Roger Bright: The drop in value between when we invested in it and sold it was in that period. I suspect-I do not have the detailed figures to hand-the loss, if you like to use that term, or the reduction in value was probably in the last two or three years of that period because that is when the market generally was travelling south.

Q104 David Mowat: I have a couple of questions on revenue. Before we do that I want to understand your overall accounts. You make about £250 million surplus a year. That is what the numbers you gave us suggest. That is on assets of about £5 billion or £6 billion.

Roger Bright: Yes; that is right.4

Q105 David Mowat: That implies a return of the order of 5%.

Roger Bright: Yes.

Q106 David Mowat: I am not an expert in your industry but how would that compare with what a best practice private company might achieve on assets of that size?

Roger Bright: It compares pretty favourably, I would have to say. The property industry benchmark approach to this is to measure total return. They do this through something called the Investment Property Databank which produces indices for the industry. We measure our total return performance, which is the combined capital growth and revenue return, against the benchmark. In every year bar one in the last 10 years we have outperformed the benchmark.5 The other thing to bear in mind-

Q107 David Mowat: Is your capital employed based on revaluations of the assets, so it is an up-to-date valuation and not some historical book figure?

Roger Bright: No, no.

Q108 David Mowat: So £6 billion is what you could expect to sell them for today, roughly speaking, notwithstanding those issues we have just talked about.

Roger Bright: Yes. Our assets are revalued on an annual basis.

Q109 David Mowat: Some of your revenue, though, comes from marine, doesn’t it?

Roger Bright: Yes.

Q110 David Mowat: I presume you don’t value the coastline.

Roger Bright: We value marine holdings where there is a dealing. Where there isn’t a dealing, the coastline or the seabed has no value. Once there is a dealing there it acquires a value. That value is essentially-

Q111 David Mowat: Then you put it into your asset valuation, do you?

Roger Bright: Yes; it goes into the asset valuation.

Q112 David Mowat: So you don’t have revenue that doesn’t have an effective asset behind it, because if you have revenue you have to value it and therefore you put it in.

Roger Bright: Yes.

Q113 David Mowat: What I was interested in, in terms of the discussion earlier, was how you actually evaluate yourselves as an entity. If you were a private company you would have all these metrics and all the rest of it, but during the course of your evidence you have used "stewardship" a lot, and "stakeholders", "community assets" and "corporate citizenship". Do you measure your effectiveness at all of those things? There was a question whether you did systematically do that earlier.

Roger Bright: We certainly systematically have key financial KPIs, but the total return one, in financial terms, is the most important one. Obviously we look at capital growth and we also look at revenue return on our assets.

Q114 David Mowat: Maybe you answered it by saying you thought you were effectively achieving best practice, but I was getting to the fact of whether you make less money for the Treasury as a consequence of your corporate responsibility ethos than otherwise they would expect. If so, how do you judge whether you are doing it right and how effective you are?

Roger Bright: That is probably an almost impossible question to judge. Certainly in the property world you can accelerate your income return by, to put it bluntly, trashing your assets, basically, and squeezing every last penny out of them. You can do that and deliver a short-term return, but we don’t do that. We invest and manage for the long term. We don’t seek to quantify what the difference might be between an approach that took no account of our wider corporate citizenship responsibilities and what the return is. The acid test is total return, which is capital growth and income return, and how that measures against what the rest of the industry is doing. That tells us whether or not we are performing comparatively well.

Q115 David Mowat: Your judgment is that you are above benchmark on that.

Roger Bright: Yes.

Q116 David Mowat: Turning to Scotland, that is about 4% of your revenue.

Roger Bright: Yes; it is slightly less than that. It is about 3.5%.

Q117 David Mowat: It was 3.7% last year but the previous years were a bit higher.

Roger Bright: Yes.

Q118 David Mowat: In a sense, if the Crown Estate was devolved to the Scottish Government and therefore obviously that 4% would go, there would be a net loss of income to Scotland because at the moment Scotland gets more than that from the Barnett formula. That is the way it works. If you were to lose the Scottish part of the Crown Estate, the Scottish Government would lose income, I believe, on the arithmetic. That is right, isn’t it? Is that your understanding as well?

Roger Bright: I don’t know. I am not familiar with the working of the block grant formula. All our revenue goes to the consolidated fund.

Q119 David Mowat: Yes, and because that 4% is lower than the Scottish proportion of the consolidated fund that is what the effect of it would be. You don’t keep separate accounts for Scotland but you have produced some numbers for us. It is management accounts effectively which you can tie in, you are confident that they are right and all the rest of it.

Roger Bright: Yes.6

Q120 David Mowat: We have talked about the investment in renewables and offshore which is going to be biased a bit towards Scotland in the next few years. You would expect that 4% figure to increase.

Roger Bright: Once it becomes revenue-generating. At the moment there is a very clear distinction. Because we are constituted as a trust, we have to go back to the beginning, with the assets being the hereditary property of the monarch and the revenue going to the Treasury. There has to be a clear distinction between capital and revenue. The capital that we are putting into Scotland and into renewable energy will eventually produce revenue returns. Like all the capital that we are putting into renewable energy investment across the UK, at this point in time the revenue return is pretty low. It is capital that will start to deliver a more significant revenue return about four to five years from now.

Q121 David Mowat: I am interested in the renewables capital that you are spending. I am a bit surprised that you, as an entity or the landlord, are doing that. What are you purchasing? What are you buying for that capital?

Roger Bright: Basically what we are doing is co-funding with the developers of offshore wind farms the preparatory work to get sites to the point where they are fully surveyed, consented and ready to be developed. We are doing that for two reasons. First of all, that process is very expensive. Generally speaking, it is much more expensive than preparing a site on dry land. There are more consents to be obtained and they require more and expensive surveys.

Q122 David Mowat: Would you have done that for offshore oil?

Roger Bright: We have no involvement in offshore oil at all.

Q123 David Mowat: What about nuclear? I am just wondering whether this is a further subsidy for offshore wind that we are disguising under this.

Roger Bright: No, I would say that it isn’t.

Q124 David Mowat: You are doing it commercially.

Roger Bright: Yes indeed, we are doing it commercially. We will get to a point where there is a fully consented site which is ready to develop and that will have a value, just as it would on dry land if you have a site which is fully consented.

Q125 David Mowat: In principle, you would do that for any source of energy or any other activity economically that will bring you in revenue subsequently.

Roger Bright: It is where we saw it as being in our interests, because that will give us a stake in the return that comes out of it. Furthermore, we saw it as part of our role, going back to working with the grain of Government policy, to play our part in helping this industry which the Government is committed to getting off the ground.

Q126 David Mowat: What you have just said is different. That sounded like a non-commercial thing. If you are saying that you are doing something for the greater good of genuine government etcetera, that doesn’t sound to me like an argument about commercial return. It sounds like a subsidy.

Roger Bright: No, I think there is a certain amount of chicken and egg in here. The Government has said it has these clear objectives to see the development of offshore wind. We have the monopoly management of the seabed. If it is going to happen, it has all got to be on our seabed. That puts us in a certain position where we can be passive and say, "All right, we will stand back" and we can let the industry develop and take its own chances.

Q127 David Mowat: That is a model that is used in most of the world for most energy development types-just that. You stand back as the landlord, you let the industry have access to where they need to be and they take their chances. What you have described is different.

Roger Bright: In the first two rounds of offshore wind, which were in 2001 and 2005, we found that developers were often very reluctant to expend essentially risk capital before they had the array of consents that they needed to get. That was the first point. The second point we found was that quite often, when leases were granted, they weren’t being developed or they were being sold on and they sat fallow.

Q128 David Mowat: My question then would be why are you keener to invest public money in these developments than the private sector is to risk their own money? The answer, I think, that you gave earlier was because there was apparently some kind of general Government thrust behind all of this.

Roger Bright: Yes.

Q129 David Mowat: It sounds like it is a subsidy.

Roger Bright: No; I would argue it is not a subsidy. When we have a fully consented site, we then grant a lease at a premium to the developer and we get a return on that. Once the offshore wind farm is in operation, we get a rental return from that as well. It is an investment which is in our business interests in terms of helping to make this happen and bringing forward a revenue flow sooner which goes to the consolidated fund.

Q130 David Mowat: So you have never invested in a location that has not subsequently looked like it was going to go into development, because obviously the way that would fail to work, as you have just described it, is if you were taking speculative positions that subsequent private developers didn’t.

Tom Mallows: There are a number of points around it. There is a lot of risk in developing these sites.

David Mowat: Yes, there is.

Tom Mallows: The risk can come from a number of places. One is regulatory public policy. It makes good business sense and all commercial entities will seek to work with Government policy wherever they can because that means that everybody is aligned. There is a fundamental principle of good business sense being where we have an opportunity, to realise future revenues, to work with the grain of Government. The point about whether we can just stand back and let it all happen or whether it is in our interests to invest up front comes back to our long-term view that we are not beholden to shareholders. We can put up front and facilitate what we hope will generate revenues in future on a commercial basis-so it is not a subsidy in that sense-but with a view to longer-term revenue streams in the future.

Q131 David Mowat: The question that remains is whether or not that risk should be being taken with public money and the extent to which you are qualified to make those judgments versus people in the private sector making those judgments.

Tom Mallows: Absolutely. That is a fair point and there are two ways we could respond to that. Roger may have others. First, there are the technical skills that the Crown Estate has taken on board, including from the oil and gas industry and various other offshore industries, to ensure that we have the skills to make those judgments. Secondly, there is the position that the UK currently holds as of late last year in the Ernst & Young Attractiveness Index for offshore wind, which is No. 1. The two of them are related in that sense. Yes, it is a risk but the risk is paying the dividends.

Q132 David Mowat: If you were a private company making those sorts of judgments and risk investments, you would be taking equity in the subsequent activity. Are you doing that or are you just getting rent?

Roger Bright: As things stand at the moment we are just getting rent.

Q133 David Mowat: Is that something that you have considered? You are taking risks on behalf of the taxpayer here. You are making investments, you are making judgments and all of the rest of it which may or may not pay off. Hopefully it will.

Roger Bright: Hopefully it will, not least because Government policy is very much behind this. In that sense there is a very happy confluence of our business interest and Government policy.

Q134 David Mowat: How much money have you invested in offshore renewables over the last few years? Do you have a number for that?

Roger Bright: So far it is relatively modest, Tom, isn’t it?

Tom Mallows: Yes; £10 million.

Q135 David Mowat: But that is going to increase. It is of the order of £10 million a year.

Tom Mallows: It is round about £120 million by 2020.

Q136 Fiona O’ Donnell: Do you mind if I interrupt at this stage? On the theme of scrutiny and accountability for the investment-the loans or grants that you give-I am looking at the submission we have had from the West Highland Anchorages and Moorings Association. They talk about being aware of "much modest and sometimes very substantial help given with minimal fuss to our members and others around the coast". It slightly concerns me that there was minimal fuss. I have this impression of lots of people with yachts getting money from the Crown Estate Commission so they have somewhere to tie them up. Can we have an assurance? I don’t know if you want to go away and consider this submission. This is in contrast with local authorities where we would hope that the same scrutiny was there.

Tom Mallows: First of all, yes, we would welcome the opportunity to come back and prepare some more detail around that point and the point you are making. On the West Highland Moorings point, if I understand it, they are presenting a case where the administration is efficient, I would hope, rather than providing opportunities willy-nilly, which is obviously not what we do.

Fiona O’ Donnell: I would hope so too.

Tom Mallows: I can seek to reassure you in that sense.

Fiona O Donnell: It is understanding why there is the investment in Tobermory for people with private boats or ships. We are not talking about the commercial side for a fishing fleet to come in. It doesn’t sound like that in terms of the submission but maybe we can have a look at that, just to understand that it is about the public good. I am very pleased for you in Tobermory.

Q137 Chair: That is quite helpful. At the moment my wife is in the Western Isles. She has just told me that apparently there are rumours flying around that the Crown Estate are going to start charging people for moorings in their own sea lochs. That is an example of you being seen as the big bad wolf that is going to come along and charge people for something that they have been doing for years. You are contributing nothing but you are taking money out. Can you understand how that image occurs?

Roger Bright: Yes, I can. To some considerable degree, for whatever reason, it may be based on some misunderstanding of what our role is. Tom is quite familiar with this particular area. He might want to say a bit more about it.

Tom Mallows: In the context of moorings we do charge a very small fee, often significantly less than where those administration fees are charged by local authorities, for example.

Q138 Chair: But this is somewhere, for example, where the people have created the moorings themselves and where you have never previously charged moorings. You are just coming along like despots to charge them money.

Tom Mallows: The legislation that defines how we have to work is quite clear in that respect. We do have a duty to act in that way.

Q139 Chair: Let us be clear then. You are saying that the legislation tells you that, despite people having had free moorings created by themselves for years, you are now driven to go round and try and take money off them.

Fiona O’ Donnell: Is that optimising or maximising?

Tom Mallows: I don’t know the case you are talking about in particular, so perhaps we could have an opportunity to respond on that particular case. What I would say in relation to the West Highland Moorings, for example, is that the positive bit we do in relation to moorings is in helping create and putting back into the associations, so helping with the co-ordination and the management side. There is a positive response. I know that West Highland Moorings is very pleased with our work in that respect.

Chair: We are going to see the Western Isles so we will be able to find out some of the truth of this. We understand there is going to be a vote at quarter past. We still have a number of points to raise so we will probably end up having to come back for a short period. You will have to excuse us when we go off when the bell rings. Those who are asking the next questions can come back as quickly as possible and we will start immediately.

Mr Reid: In relation to what Fiona has said, I stress the importance of these moorings to the local economy. The users may well be well-off people, but because the moorings are there those well-off people are coming into the local community and spending a lot of money.

Chair: We will be able to see whether or not we are subsidising the undeserving when we go and see them.

Mr Reid: The whole local community is benefiting from these wealthy people.

Chair: We will go and see whether or not there is a trickle-down effect when we go and visit these various locations.

Q140 Cathy Jamieson: I will try and keep this very brief. It is to firm up some of the points that David made, particularly on the issue about marine renewables. I was listening very carefully all the way through to what you were talking about in relation to working closely with the Scottish Government, with developers and so on. Primarily, who has the lead role in terms of marine renewables in Scotland? Is it yourselves or the Scottish Government? Who is driving that?

Roger Bright: The Scottish Government, basically. We are the landowner.

Q141 Cathy Jamieson: You see yourselves as the landlords, essentially.

Roger Bright: Yes.

Q142 Cathy Jamieson: How does that fit with some of the investments or the development role that you are taking? Are there tensions between the two of those and between yourselves and the Scottish Government’s agenda?

Roger Bright: I am sorry, I am not quite sure what you mean.

Q143 Cathy Jamieson: For example, you have talked a lot about what your powers allow you to do. Are there any tensions or conflicts between trying to deliver on the Scottish Government’s agenda in terms of marine renewables and any of the other pressures on you? That is what I am getting at.

Roger Bright: There is no conflict in terms of other pressures that are on us. We work extremely closely with the Scottish Government, particularly at official level. Tom and his colleagues in Edinburgh have frequent meetings with Scottish Government officials. Those relationships are working very well. As far as I am aware, we are not finding those discussions difficult because of other pressures that may be upon us elsewhere.

Chair: We will adjourn now and be back as soon as we can.

Sitting suspended for a Division in the House.

On resuming-

Chair: We can move straight on to Alan Reid’s questions.

Q144 Mr Reid: What is your policy regarding community benefit schemes arising out of renewable developments in the area where the community lives?

Roger Bright: This was something that came up when we appeared in front of the Treasury Select Committee. As I explained then, if there is a question of us putting money into general purpose funds we would have a problem with that. However, what I would say is that the principal benefit for communities that comes out of offshore renewable energy is going to be jobs. Certainly, for example, the work that we have been doing with the Highland local authorities in terms of developing a memorandum of understanding with them has been all about trying to make sure that the work that we are involved in with offshore developers is aligned with the aspirations and objectives of the local authorities in terms of helping capitalise on job opportunities and making sure that local businesses and companies are able to contribute to and benefit from offshore renewable energy adjacent to them.

Our focus on communities in relation to renewable energy in that sense is very much in that direction. Certainly we are very keen to try and make sure that what we are doing and what we know of what offshore wind farm developers need can be, as far as possible, satisfied from local communities. The most valuable contribution, in a way, that we can make is doing our part to ensure that the needs of the offshore wind farm industry can be met from local communities, and that will mean jobs and advantages for local businesses.

Q145 Mr Reid: But we are talking about huge engineered structures and the communities tend to be very small and remote, based on agriculture and tourism. Can you give examples of where you think jobs will be created as a result of these developments?

Roger Bright: Perhaps I could ask Tom to say more.

Tom Mallows: The first point to make is that it is not for us to decide what happens to any revenues that we generate from these in future. The second point is about our role. We have already talked about who is the lead on renewables in Scotland. We are not the regulator, but we do act in accordance with and working with the grain of the Scottish Government effectively as a delivery vehicle.

Q146 Mr Reid: Who is the regulator?

Tom Mallows: Marine Scotland is the regulator for offshore renewables.

Q147 Chair: But you are the developer.

Tom Mallows: No; we are not the developer. There are two different models. Within Scottish territorial waters, the process for the offshore sites that have been proposed at the moment is known as the Scottish Territorial Waters Offshore Wind Programme. We suggested in 2007, as I think I mentioned previously, that the Scottish Government should do their formal strategic planning process: the SEA-Strategic Environmental Assessment. We were asked to proceed with an ad hoc leasing round where we simply say to the industry, "Where would you like to go?" Industry chose those locations. We didn’t choose those locations. We changed our process of leasing specifically in the Scottish territorial waters to reflect the difference in approach with the Scottish Government. We provided what is known as exclusivity agreements which gave companies the choice, at their risk, whether to carry out some of the work that they needed to do to start understanding the sites-the site investigation and survey work-that would then be used to apply for a consent from the Scottish Government. The agreements to lease that we propose are all subject to the securing of statutory consents. All they do is give the developer the security to those sites. We will not give a lease unless those statutory consents are obtained.

Q148 Mr Reid: What do you actually do? You don’t construct the development. You don’t regulate the development. What do you actually do?

Tom Mallows: In that case we effectively administer the rights to that.

Q149 Mr Reid: But that sounds like five minutes’ work. The applicant says, "We want a site there." What do you actually do?

Tom Mallows: The delivery vehicle is the most important aspect of that. For example, this is not in your constituency but on the east coast. Roger made the point before that we are set up under the Act to realise and enhance the value of the Estate. Ultimately that is what we are mandated to do. The role we filled in the Scottish territorial waters is based on the experience we have from rounds one and two, almost entirely south of the border, where achieving that consent is very difficult. What we have done on both the west and east coast is to bring the developers together. We have actively facilitated that process of development. With regard to the consenting problems that they face, for example, cumulative impacts and landscape impacts, we have provided a vehicle for getting developers together to collaborate, which they wouldn’t necessarily otherwise do. We have funded strategic bird studies to provide the data that they then need at a regional scale on the east coast to put into their consent applications.

Q150 Mr Reid: Why doesn’t the developer fund these?

Tom Mallows: They do, but there are certain aspects with which we are in a good position to help where it is not just about a specific site. Where it is just one specific site issue the developer will lead that process.

Q151 Mr Reid: You said earlier that you generate the revenue, but it is not for you to decide what that revenue is used for. Who would have to take that decision?

Roger Bright: It would have to be the Treasury. Basically under the terms of the Civil List Act all our revenues have to be surrendered to the Treasury.

Chair: But this is the argument that says all the bag of swag gets carried off to the Treasury and you just dump it there.

Q152 Mr Reid: But you have given other examples such as the statue to the Land Girls. You didn’t say, "Well, that’s up to the Treasury to fund that." You seem to be saying that you are not going to set up any community benefit schemes.

Roger Bright: No. What I am trying to get at goes back to a point I made earlier. Everything we do in terms of spending money has to be, in some way or other, to the benefit of the assets for which we are responsible. You can interpret that reasonably broadly, but what it means is that we have to look at every proposition that comes to us. If it is a proposition asking us to make some sort of financial contribution we will look at it and, if we think it is worth while and it can be construed as having some sort of benefit to our business interests, then we can look at it positively. What we can’t do is deliver a pot of money to a third party and say, "You can have this to spend how you wish." That is what we can’t do under the terms of the Act. If you are talking about generalised funds, that is something we would have a difficulty with putting money into, which is why we say, if that model is going to be developed, then it would be a matter for the Treasury to decide how it applied our revenues, not for us, because we believe we are constrained by our Act.

Q153 Mr Reid: If, for example, there was a proposal to develop a harbour, is that something you could put money into? Am I right in saying that you can look at a specific project and say, "Yes, we will put money into that", but what you cannot do is say, "We will put money into this fund for other people to decide how it is spent"?

Roger Bright: That is exactly it.

Tom Mallows: If I may, that is precisely why we have proposed a memorandum of understanding with the various local authorities, including Argyll and Bute Council, to try and understand better where there are proposals that those local authorities have taken forward that fit with our own aspirations in terms of providing a business opportunity.

Q154 Mr Reid: We talked earlier about creating local jobs. I am still not clear as to what those local jobs are going to be doing. Can you give some examples of where you think local jobs would be created? You have proposals for wind farms offshore from the Isle of Tiree. Where do you think the local jobs in the Isle of Tiree are going to come from in these developments, if they go ahead?

Tom Mallows: The opportunities are clearly there in a number of ways.

Mr Reid: It is not clear.

Q155 Chair: It is not clear to us, so clarify it for us.

Tom Mallows: We have published a report or an information document called "Your Career in Offshore Wind", which may be of interest to the Committee to see, if that would be useful. That sets out the range of jobs that are associated with, for example, offshore wind development. There are a number of different types of jobs. I can’t list them all off the top of my head.

Q156 Mr Reid: But for the likes of working on a oil rig, for example, the oil rig jobs don’t all go to people in Aberdeen. There are people from all over the world who come to Aberdeen to work on the oil rigs.

Tom Mallows: But it is the opportunity.

Q157 David Mowat: Did you say you had published a book on opportunities in wind?

Tom Mallows: Yes.

Q158 David Mowat: Why would the Crown Estate publish a book about the opportunities in wind?

Tom Mallows: There is a good answer to that. It relates to our public role. One of the biggest challenges facing the offshore wind industry-and we know this because of the technical expertise we have within our teams-is skills and the supply chain. It is one of the key challenges facing the industry if it is going to deliver as Government has set out its priorities for delivery. This is where we become the vehicle for delivery, effectively. We facilitate the process. We act in the centre of this particular issue.

Q159 David Mowat: Do you see yourselves as some kind of godfathers for the offshore wind industry?

Tom Mallows: Not in the slightest.

Q160 David Mowat: It seems to be what you are implying.

Roger Bright: Perhaps, Mr Mowat, I can put it this way. We have a very clear business interest in doing what we can to help an industry get on-stream that is going to deliver quite significant flows of revenue ultimately for the benefit of the public finances.

Q161 David Mowat: On a point of fact, there is no foreseeable likelihood in the near future of offshore wind producing anything other than very, very, very heavily subsidised electricity. I agree that it is Government policy to do that, but let’s not hide that fact with something like Thanet. That is a brilliant technical achievement but the subsidy for that is £1 billion over its life. There are huge, huge levels of subsidy. I was just interested that you seem to be regarding yourselves as, as I have described, some kind of godfathers to this industry.

Tom Mallows: Might I give you another example? The aquaculture industry is another example where we are not passive in our role. We fund annual research into biotoxins, for example. There are problems that the industry faces industry-wide.

Q162 Chair: I understand that point. Let me come back to this question of local jobs. Maybe wind farms are slightly more difficult, but let us come to aquaculture. It seems to me entirely reasonable that you should make it a condition of developing an aquaculture centre or facility that they employ local people. It seems to me that that is not beyond your powers or beyond the realms of possibility. It does not clash with your idea about not giving money away and all the rest of it. Do you do that? If not, why not?

Roger Bright: We don’t do that because that is not a normal condition of a lease. It would be very difficult for us to put a condition like that into a lease because who would enforce it?

Q163 Chair: You would enforce it.

Roger Bright: But how are we going to enforce it?

Q164 Chair: This is one of the worst examples, I think, of where you are clearly trying to wriggle out of something that you could do but are choosing not to. We developed a shopping centre in my constituency. It was a private developer. He told the contractors who were working for him that he wanted a specific number of local people employed or they didn’t get on the site. He told a number of shopkeepers that they had to employ a certain percentage of local labour or they weren’t getting allocated shops. They did it. I do not understand in those circumstances, if you are giving somebody the right to develop something like aquaculture, why they should not be obliged to employ a certain percentage of local people with the only get-out being that there is nobody available locally with those particular skills. I can accept that if it is something particularly exotic-you can’t get a fish chemist or something similar-you get out of that. But I cannot understand why you are not willing to make a stipulation that jobs go to locals.

Roger Bright: What we have tried to do is to use other means of facilitating the employment of local people in areas where we operate. We have not tried to write them into the terms of our leases. Maybe that is something we could look at, but I can see some quite difficult practical problems around enforcement of that. What we have tried to do, as Tom was saying, in relation, for example, to development of the offshore wind industry is promote something like 20 supply chain events around the UK, half a dozen of which have been in Scotland.

Q165 Chair: Let us not drift on to something else. Let us come back to this question of employment. How successful have your efforts been to get local employment? What measurements do you make? Can you produce figures for us?

Tom Mallows: Can I answer a couple of points on the previous question and then come back to that one? There are two points. First of all, we don’t have an offshore wind industry in Scotland yet. We don’t have wave and tidal industries in the UK yet. If these industries are to be successful we have to be an attractive place to do business. There are clearly going to be points where writing in difficult conditions of leases is not in the interest of the industry as a whole. That is why we do things like working with the Highlands and Islands Enterprise, whose job it is to do that kind of work. We try and give them as much information as we can to help them to do their work.

Q166 Chair: These are alibis rather than explanations. Rather than you diverting us on to something else, let me just come back to aquaculture. It is not rocket science. A number of the jobs in aquaculture are essentially labouring jobs. Is it the case that you make any stipulation that these have to go to locals? As I understand it, the answer is no.

Tom Mallows: Yes.

Q167 Chair: Why not?

Tom Mallows: The other point which I was just going to come on to-and I would need to check this and come back to the Committee if I may-is that we are a public authority and therefore we are subject to state aid regulations in the same way as any other public authority would be. It may be that we are not allowed to do that.

Q168 Chair: Fine; that might be an acceptable alibi but it has taken you quite a while to get round to that.

Tom Mallows: Apologies.

Q169 Chair: It is a question of the will and the attitude. Other people have managed to get round this. There are hospitals in my area which are being built which have managed to get round some of that by constructive efforts. You have lawyers who manage to tell you what you cannot do when it suits you. Surely you can find lawyers who tell you that you can do what you want to do when it suits you. You have lawyers here with you. If they can’t do it themselves, there will be other lawyers who will be able to help you to do that.

Tom Mallows: And we have done that. That is why we are giving the examples of all the various other things which are pushing at the edges of what you might say are direct investments. There is careers guidance, working with the Highlands and Islands Enterprise-

Chair: You are possibly picking up that we think this is not sufficient.

Fiona O Donnell: Tom, the problem I have with all of this is that you are generating all this work for yourselves with environmental impact assessments of birds on wind farms. I know that the RSPB carries out that work. You are looking at skills development. People in Scotland vote for a Government here and in Holyrood, which is politically accountable to set the direction of policy. Nobody elects you. I get the feeling that you can decide, "This is interesting; this is a niche we can carve for ourselves", but how does it fit in with the overall strategic plan for Scotland’s future energy needs? Where is the accountability in all of this? Where does the evidence of best value come from if you go off and you do this research? I am finding this all slightly uncomfortable.

Chair: We are not happy. We have gone through quite a lot of stuff. It is the point I made earlier on about the benevolent despot. It gets to a point on things like this, which I anticipated, where you do not seem to be as responsive and as helpful. It is almost as if you don’t understand what you are saying and that you are not up to speed with best practice elsewhere in development and the way in which there are efforts being made to share best practice from elsewhere. I do genuinely find myself astonished by this.

Q170 Mr Reid: Could you make sure that we get a copy of the book you referred to on local jobs?

Tom Mallows: Yes, of course.

Q171 Jim McGovern: On the same subject as Alan, on local employment, a number of companies in my constituency of Dundee have committed to the fact that if they win the contract they will guarantee so many local jobs, etcetera, and then they bring in companies from Aberdeen, Edinburgh, Newcastle or Manchester. Increasingly I have people coming to my surgery saying to me, "Why is it that I can’t get a job on that building site because everybody there seems to be either from Newcastle, Manchester, Edinburgh or Poland?"

There was a ridiculous situation. There was an advert in the job centre in Dundee for a GF-general foreman-on a building site. A local person was able to tick every box for health and safety and organisation but at the very bottom it said "Must be able to speak fluent Polish." That is on a building site in Dundee. Surely you would agree that that is ridiculous if a commitment is made to employ local labour. I have to say it doesn’t matter to me if that local labour is of Polish, Lithuanian or Estonian origin as long as they live in our area.

Roger Bright: I can quite understand the point you are making, Mr McGovern. All I can say is that we are acutely aware that offshore renewable energy in particular has the potential to create huge job opportunities. We are conscious that those job opportunities could be in locally adjacent areas. To take your point, Mr Davidson, we have not enshrined in any leases that it should be a requirement for people to be employed locally by the tenant or the occupier. At the moment we haven’t entered into any leases on offshore wind farms in Scotland anyway. All I can say is that I take delivery of your point. What I would say, though, is that we are pursuing a range of other non-statutory mechanisms, which includes our proposed MoU with the Highland local authorities. It includes supply chain events with companies that could benefit from offshore wind. We are pursuing a whole range of non-statutory devices to try and stimulate awareness of the opportunities for jobs.

Q172 Chair: There is a division between us. I can see why you are doing a lot of things that are eminently sensible from a business perspective. They are about safeguarding or enhancing your assets or future assets. But we have interests beyond that, which you clearly do not.

Roger Bright: I understand that.

Q173 Chair: This is the issue about accountability and so on and to whom you are responsible. We are interested in making sure that the local areas involved get some form of rent, whether it is financial contributions or jobs on the things that you are developing. You don’t have that perspective. I am not sure how we bridge that because every time we raise issues you retreat behind legal advice.

Roger Bright: With respect, no, that is not what we are doing. We are constrained by our Act, and the Public Accounts Committee would be the first people to jump all over me if I started acting outside-

Q174 Chair: I am not sure they would on this issue.

Roger Bright: We perceive that we have to operate within our Act. That said, we have every interest in ensuring that communities prosper where we have a major interest. That is in our business interest and it is in the interest of the communities where we are present.

Q175 Chair: I think you are possibly identifying that we are less than totally satisfied with the status quo; otherwise we would not have been established in the first place. Change is going to come, in my view. It is either going to be done with you or against or despite you. It seems to me that there are two alternatives for us. One is for you to help us identify ways in which the rules under which you operate can be changed in order that mutual objectives can be achieved, or we just give up and say, "This is not an organisation that is capable of reform." We would end up saying we devolve it, break it up or hand it over to the local authorities or something different. It seems to me that that is the choice we are going to be faced with. Whether or not the Government picks up our observations we will wait to see, but that is the position in which we find ourselves.

Q176 Mr Reid: There is one more question. The Crown Estate already has a Marine Community Fund that gives out project grants. Can you tell me how you decide which grants to give out? What are the criteria?

Tom Mallows: All of the information is on our website in simple terms and we can provide that in more detail.

Q177 Mr Reid: But in simple terms today.

Tom Mallows: In simple terms, we will take applications. Any grants that are given out have to add value to our business. They have to be in line with our Act. It is a limited pot of money. Each and every application, if it is successful, has to have a legal review to make sure it is within the vires of our Act. Effectively it is about projects that are either beneficial to the community or provide research and improve information around the marine environment that also have tangible benefits to our assets.

Q178 Chair: I will come back to a couple of smaller points. You don’t pay corporation tax or any other form of tax. Why is that?

Roger Bright: The reason for that is simply because all our profits go to the Treasury-the whole lot.

Q179 Chair: Are there circumstances where you might be in competition with someone else for, say, the purchase of property and the absence of tax distorts the market and makes proposals financially viable for you which would not be viable for someone else? Is there an issue there that we ought to be aware of and that we ought to be considering?

Roger Bright: I don’t think so because we pay transactional taxes. We pay SDLT and we pay VAT. When it comes to transactions we are competing on all fours with other players in the marketplace.

Q180 David Mowat: The answer to that question is to do with how well you are doing against your overall benchmark. The question was, are you in some way subsidised and therefore you can bid more for the same asset as a private company? Your answer to that would be that judge and jury on your financial performance is your benchmark and, as far as you are concerned, you beat it.

Roger Bright: Yes.

Q181 Chair: That is one of the issues that will concern us. Looking at your accounts, I also notice that the Windsor Estate element of your portfolio runs at a loss. I take it, therefore, that is being subsidised by the rest of the Crown Estate rather than the income from the Crown Estate going to the Treasury and then money coming back out again. In a sense you are taking a decision to subsidise the Windsor Estate when you have indicated to us that you are not perhaps willing to subsidise or pay out costs for other things. Can you square that circle for me?

Roger Bright: Yes. Under the terms of our Act it is the one asset that is specified on the face of the Act that we are required to maintain and keep in the manner of a Royal Park. We are under a statutory duty to run Windsor Great Park and to maintain its character as a Royal Park. That obviously has a cost attached to it. We seek to offset those costs by raising revenue wherever we can on Windsor, and we do to a considerable degree offset those costs. We have been gradually reducing the deficit on the Windsor Estate but there is still a small deficit. I think it is about £1.5 million.

Q182 Chair: That is quite a lot of mooring fees from the Western Isles, isn’t it? Effectively, mooring fees off the west of Scotland are being used to subsidise Windsor Estate.

Roger Bright: No. It depends how you choose to express it.

Q183 Chair: I think that is how I would choose to express it. There certainly seems to be an element of truth in it, doesn’t there?

Roger Bright: No. All our revenues from all our sources go into a single pot.

Q184 Chair: A bucket.

Roger Bright: And they then go to the Treasury. The amount we give to the Treasury is less by the loss that we incur at Windsor.

Q185 David Mowat: The issue the Chair has raised, though, is that it is a non-transparent subsidy. Effectively, it is done by you before it is all divvied out, whereas had it been paid out by some other mechanism it would be transparent.

Roger Bright: But what I would say is that in our annual report and accounts you will find the figures about Windsor, which is presumably where you have identified that it does run at a loss.

Q186 Chair: The biographies of your Edinburgh Corporate Leadership Team list something about some of your people. One of your members of staff was partly educated at Dingwall Academy and partly somewhere else, if I remember correctly. It doesn’t mention anything about where the others were educated. Given that we have asked before about how many of them are public schoolboys, I presume that they all are. Is that correct?

Roger Bright: I don’t know that for a fact.

Tom Mallows: I don’t believe that that is the case.

Q187 Chair: We did actually ask that when we met you informally and I thought that that would be in the paper. Maybe you could let us know that in due course. I think we have covered just about everything. Is there any final point you want to make to us that will appear on the record? I mean by that answers you had prepared for questions that we have not asked.

Roger Bright: No, Mr Davidson. You have given us a very fair hearing, if I may say so, and an extensive one. All I would want to say in conclusion, as I said at the beginning but it is perhaps appropriate to repeat it, is that we do wish to be a very good corporate citizen, if I can put it like that. We regard it as the right thing to do and in our business interests. We do, however, have to operate within our Act. If Parliament chooses to change the mandate under which we operate, that must be for them. Within our Act, as I say, we seek to be a responsible and corporate citizen.

Chair: Thank you very much for coming along.

[1] Note by witness: We think the question referred to the ‘state’s property’ rather than the ‘Estate’s property’ and that is the meaning to which Roger Bright responded.

[2] Note by witness: We have just under 200 agricultural tenancies, rather than tenanted farms. There are 196 tenancies. A farm may comprise more than one tenancy.

[3] Note by witness: The land in question was in Fochabers rather than Glenlivet. Further information supplied separately as requested (Ev XX)

[4] Note by witness: For clarification, the ‘£250 million surplus’ referred to in the question is the gross surplus, that is the turnover less operating costs.

[5] Note by witness: Over the last 10 years to March 2011 The Crown Estate’s average total return was 10.8% per annum as against the IPD Quarterly Index average of 6.6% per annum. There were three individual years during the last 10 years when we did not outperform the IPD benchmark on an annual basis.

[6] Note by witness: Following the hearing, when reviewing the 2009/10 Scotland Report in readiness for preparing the 2010/11 report, an error of allocation was identified within the gross surplus figure published for 2009/10. Accordingly we will be restating the management accounts figures in the Scotland Report for 2010/11 to show the gross surplus for 2009/10 as £11.0m rather than the £9.1m previously stated. The total revenue figure stated at £13.1m is unaffected. The Scotland Report figures are not subject to a formal audit, however we have agreed with The National Audit Office that from 2010/11 onwards they will audit the management accounts figures published in respect of our Scottish operations.

Prepared 13th October 2011