Austerity Queen 'will run out of money by Diamond Jubilee'

The Queen is engaged in an unprecedented austerity drive as accounts reveal she will run out of money within two years.

Figures released today show the royal household will be "broke" by 2012 — the year of the Queen's Diamond Jubilee — unless urgent action is taken.

The accounts reveal she was forced to take a record £6.5 million from cash reserves just so that she can fulfil her duties.

The Queen has only £15.2 million remaining of reserves and is expected to draw down a further £7.2 million this year, leaving £8 million, or little more than one year's money, left in the pot.

The cash flow crisis has forced palace officials to take the axe to every aspect of the Queen's spending including stationery, staff, uniforms and soft furnishings.

Senior aides have had their salaries frozen and a recruitment freeze has been imposed. Spending on furnishings and equipment fell from £400,000 in 2008 to £300,000 last year, while spending on uniforms and protective clothing halved from £200,000 to £100,000.

Half as much was also spent on computers and information systems — down from £400,000 to £200,000. Spending on equerries and orderlies was £1 million in the year to 31 March 2010, down from £1.4 million the year before.

Sir Alan Reid, Keeper of the Privy Purse, said: "The royal household is acutely aware of the difficult economic climate. We are implementing a headcount freeze and reviewing every vacancy to see if we can avoid replacement."

The accounts, for the financial year 2009-2010, show taxpayers spent £3 million less on funding the monarch this year than they did last year.

She now costs each Briton 62 pence a year, down seven pence on the year before. Once inflation is taken into account, the Queen has seen her state support drop by 12.2 per cent in real terms from £41.5 million to £38.2 million in the year 2009-10.

Her civil list expenditure — which pays for the running of the royal household including staff salaries — went up £300,000 to £14.2 million.

The Queen's budget shrank largely due to less use of commercial charter flights and cuts in travel. Official royal trips cost £3.9 million compared with £6.5 million the year before.

The accounts also show two of the Queen's most important employees have taken substantial pay cuts. Sir Alan saw his own salary fall from £194,000 to £180,000, while the monarch's private secretary Christopher Geidt saw his pay drop from £155,000 to £146,000.

Sir Alan said: "We're freezing the salaries of senior staff so we can provide worthwhile increases for those on lower salaries. We want to be fair to the lower paid as that seems right in the economic climate. Property services funding will be reduced by £500,000 this year.

"Work will continue on assessing the condition of the estate, but it is acknowledged that the necessary cuts in public expenditure will have an impact on the backlog of essential maintenance which it is hoped can be addressed in the longer term. In the meantime, the household is continuing to pursue opportunities to reduce costs and generate income from the estate's assets, including commercial lettings and management charges."

Chancellor George Osborne announced as part of his Budget that the civil list payment will remain frozen for the coming year. But he hinted that "a new means of consolidated support" would be proposed at a later date.

Sir Alan said that a new system will be in place by 2012 — in time to prevent further financial problems. He added: "This year we will be discussing with the Government a new system to provide support for the Queen. It will be in place by 1 January 2012. It would be helpful if the Government rolled together all the grants as it would allow us to manage the household finances more effectively."