No 'backdoor payments' to the prince

It was misleading to suggest the Treasury is curbing the "prince's accounting fiddle" (Report, March 30). There was no accounting fiddle (simply a borrowing at a commercial rate of interest) and no curb. The loan was a business transaction whereby the revenue account borrowed from the capital account and paid interest on the borrowing. The revenue account could have borrowed from a bank. But it made sense to pay the interest for the benefit of the capital account rather than to a third party. Interest is charged by the capital account at the highest lending rate quoted by three commercial banks.

There was no "backdoor payment" or "creative accounting". The loan was approved by the Treasury and the Duchy's auditors, PricewaterhouseCoopers. No other organisation seems to be criticised for sensible borrowing.

The loan facility was disclosed in the parliamentary accounts (which are available to the public). Although the Duchy does not state how the income it provides is utilised, Clarence House publishes an annual review which shows how the Prince's income from the Duchy is spent.

You say the loan had been used to pay the prince's personal staff. The loan from the capital account was not to the prince or used to pay his personal staff. Loans are used to fund working capital requirements such as debtors, repairs and some Duchy of Cornwall staffing costs. Most of the income received from the Duchy of Cornwall is used to fund the prince's official and charitable activities.

The statement that "The prince is understood never to have paid back any of the money borrowed" is incorrect. The Duchy revenue account, as a matter of good practice, repays the capital account as soon as possible. There is currently no loan outstanding.

The figures were not kept secret from the public accounts committee. Indeed, Alan Williams specifically raised the matter of the £1.2m loan facility at the hearing. There was no curb: the proposal to reduce the loan facility was accepted by the Treasury. The reduction in the loan facility did not arise from criticism from MPs in February 2005. The correspondence with the Treasury predates the public accounts committee hearing by almost 12 months.

For the record, for the year 2004-05 no borrowing took place at all.
Paddy Harverson
Communications secretary to the Prince of Wales