The reality behind claims Scotland is set to cut Royal funding

By Peter MacMahon, ITV Border Political Editor

This morning's headlines suggesting the Scottish government is planning to cut funding for the monarchy do not make pleasant reading for the SNP government.

Scotland, it is being reported, is to 'snub' the Royal Family by cutting its contribution to the funds which maintain that great British institution.

But is the Scottish government actually going to do that, and is the monarchy going to lose out? Well, it's not quite as simple as that. Allow me to try to explain.

This is all about the Crown Estate, which is effectively an independent company which runs what used to be the property of the monarch.

It traces its history back to 1066 - and all that - and the current set-up was established in 1760 when George III was short of a bit of cash.

He came to a deal that the government would take over the running of his estates in return for what became the Civil List and is now called the Sovereign Grant.

Under the current deal, the monarch gets 15% of the 'profit' of the Crown Estate - though they insist it's not as simple as that.

According to the Crown Estate website, they "pay their entire revenue surplus (or profit) to the Treasury".

They explain: "The Sovereign Grant simply sets the level of funding the Queen receives from the Treasury by reference to 15 per cent of The Crown Estate's profits."

Pretty much 15% in layman's terms, most people would say.

The problem over Scotland has arisen because the Scottish part of the Crown Estate is likely to be devolved in the post-referendum process following the Smith Commission.

The Queen address Holyrood in 2011 Credit: PA Wire

Many in Scotland are critical of the Crown Estate, which owns pretty much all of the foreshore around Scotland's coast and the seabed off it.

Critics say the Estate holds back local development and industry, a claim the Crown Estate strongly denies - they say they create jobs and business on their estate.

Anyway, what would devolving it mean in terms of income?

It does mean that the income from the Crown Estate in Scotland will go to the Scottish government.

And that does mean, as Royal officials have said, there will be a drop in the 'profit' from the Crown Estate which is used as the basis for funding the monarch.

But sources in the SNP-controlled Scottish government and the Treasury I have spoken to say it will NOT mean a cut in Royal funding.

The Treasury in London Credit: PA Wire

And, as we saw during the independence referendum, they rarely agree on anything.

Why? The Treasury say that when they make the calculation in future they will base it on Crown Estate 'profit' across the UK, taking into account the amount made in Scotland even if it goes to Holyrood.

They also say the 'no detriment' principle of Smith - sorry jargon - where neither side loses out from further devolution - will kick in.

That means, the Treasury say, that if Scotland gets extra income from the Crown Estate the block grant to Scotland under the famous (ish) Barnett formula will be cut by the same amount.

The Scottish government sees it slightly differently. They say that Scottish taxpayers will still contribute to the Treasury coffers even after substantial extra devolution.

From those taxes, which pay for non-devolved services - for example most social security, defence and the like - the monarchy will be funded.

As to the claw back of money under the 'no detriment' principle, SNP government sources say that is still subject of negotiation between the Scottish government and the Treasury.

That detail just might allow critics of the SNP to argue that the Nationalists are trying to get out of making a contribution to the monarchy - in other words they keep the extra funds from the Crown Estate but do not accept a reduction in their block grant.

But it would be a claim the Nationalists would strongly dispute, given their argument that Scots will continue to pay UK taxes.

It appears therefore that the Royal official who started this ball rolling by briefing journalists that there would be a cut did not appreciate the delicate politics of SNP-run Scotland and its relations with the Tory-run Treasury.

Nicola Sturgeon meets with the Queen in 2014 Credit: PA Wire

This official certainly did not appreciate the way funding matters of all kinds which relate to Scotland and the UK - including funding the Royals - are as much a matter of politics as they are of formulas and numbers.

There is a final irony in all of this in that Nicola Sturgeon, the SNP First Minister, met the Duke of Rothesay - as Prince Charles is known in Scotland - yesterday.

Ms Sturgeon nipped over the road for a chat from the Holyrood parliament to Holyrood Palace where the Duke is in residence.

In her political youth, the current First Minister was not a big fan of the monarchy but like her predecessor Alex Salmond has learned to love - or at least to do amicable business with - the Royals.

No-one will ever tell you what was said in these meetings but I am told relations between the First Minister and the monarchy in the shape of the Duke are good.

What this row shows is that even the process of devolving further powers from Westminster to Holyrood - never mind independence - is difficult and politically fraught.

Royal officials in their palaces will not have appreciated that. We can be sure they do now.

Oh, and in case you wondered, the Crown Estate made a profit of £285 million this year across the UK.

The 'gross revenue' for Scotland - not the same as profit the Crown Estate say - was £14.6 million.