Henry and the Queen
All it takes to buy a vacuum cleaner in England is a bit of pocket change, a mere three pounds a week, or about 3.5 euros. And who can't spare a few quid? That’s the “rent-to-own” deal offered by BrightHouse, a well-known British household goods chain. Whether your mattress has mildew, your freezer has suddenly thawed or your washing machine is on the blink – no worries. Even if you've already spent this month's paycheck, BrightHouse has an "affordable" solution. Payments are made weekly, for two years – 104 weeks at 3.12 pounds per week. In the end, the Henry Xtra vacuum cleaner sets you back 324.48 pounds. At any other store, if paid for in cash and not on credit, the same model would only cost about 160 pounds. For its rent-to-own service, BrightHouse piles on a whopping interest rate of 99.9 percent.
The victims of this swindle are, of course, those who are too poor to pay for the vacuum in cash up front.
These kinds of dizzyingly high profit rates have also been alluring for investors for years. Now, the Paradise Papers show the wealth of one woman, who probably hasn't pushed around a vacuum cleaner or defrosted a freezer in quite some time, flowed into the chain store. This woman, who in her 91 years can hopefully always afford to pay cash, is Her Majesty, Queen Elizabeth II. The British monarch, in other words, used some of its money to finance a company that, even in the eyes of the British Financial Conduct Authority (FCA), is robbing its customers blind. Even if the queen knew nothing, as her aides have insisted, it still provides a vivid vignette of how easy it is for big money to end up where it shouldn’t.
The distinguished ruler's path to the dodgy rent-to-own business begins in Lancaster in northwestern England. The small port city is eponymous with its duchy, and the name of the Duke of Lancaster has been the same for the past 65 years: Elizabeth II. The title itself may seem a bit dull compared to the radiance of the royal crown, but it’s a veritable gold mine for the queen, because her duchy is essentially a company that administers properties and real estate – assets that are currently worth more than a half-billion pounds. The financial surpluses go to Her Majesty, and she can do with the money whatever she likes.
The last amount reported at the beginning of this year Financial reporting by the Duchy of Lancasterwas 19 million poundsFinancial reporting by the Duchy of Lancaster. Technically, the queen doesn’t have to pay a single penny in taxes on that money, but she has done so of her own accord since 1993. After all, the British government finances the royals using taxpayer money, so the head of the royal house pays her fair share. Plus, she has other sources of income.
The finances of the royals are complicated, but so too is the royal house itself on occasion. The queen’s living costs are financed through revenues from various assets, such as the Crown Estate, which includes most of Regent Street, the exclusive central London shopping destination.
The queen is the legal owner, but the Crown Estate has been run by an independent authority since the 18th century – one that is required to pass on all profits, The Crown Estate: Annual Reportmore than 328 million pounds last yearThe Crown Estate: Annual Report, to HM Treasury, the finance ministry. The government then pays a set amount to the queen to cover the costs of her duties. One way of looking at it is that in 2016, the cost of the royal family was 62 pence for every citizen of the United Kingdom. Or about what BrightHouse charges per week for a guarantee on the Henry Xtra, its extortionately priced vacuum cleaner.
Income like that generated by Lancaster is essentially just pocket change for the queen. Nor does she have to do anything herself to ensure that the money arrives on time, either. Officials do the work for her – financial managers at the service of the queen, there to ensure that her assets remain healthy. And in as sizeable an empire as Britain’s, there is a wide variety of options for doing so, including a few dark corners in some of its more far-flung territories. One such place is the Cayman Islands, which is also part of the queen’s kingdom – and a true tax haven.
There, in the British Overseas Territory with its Caribbean flair, the Duchy of Lancaster’s diligent financial managers invested exactly 7.5 million pounds in 2005. They put some of the queen’s money in an investment called the Dover Street VI Cayman Fund, with the duchy itself becoming a stakeholder. The fund’s task was largely to collect money from around the world and provide it to an American investment company, which then invested it in the United States before directing the profits back to the Cayman Islands fund. This allowed the transactions in America to remain tax-free both there and in the Caribbean. The Cayman Islands, after all, has a zero-percent tax rate on profits generated abroad.
Does this make the queen a tax avoider?
It’s unlikely that Elizabeth II or any other member of the royal family knew anything about this type of investment. When contacted for comment, the duchy stated the queen appoints a "chancellor" and the Duchy Council to administer these matters. The duchy’s investment managers, though, evidently knew all about it: The Dover Street fund in the Cayman Islands sent detailed reports on all of its investments, as the Paradise Papers show. In one report, the investment managers at Dover Street wrote in September 2007 that the fund would also now be investing in a shell company called Vision Capital Partners VI B LP, in order “to acquire a portfolio of two retailers in the United Kingdom.”
One of those retailers was BrightHouse, the company with the overpriced vacuum cleaners. Elizabeth II, the queen, and Henry Xtra, the vacuum cleaner, had finally been united.
Today, BrightHouse operates more than 280 stores across Britain, but even online, it only takes a few clicks to fall into the price trap. And the company blatantly seeks to exploit low-wage customers: “Pay weekly could be the ideal option if you’re paid on a weekly basis,” its website claims, further arguing this saves buyers the trouble of having to put money aside each week to cover a larger monthly payment. Consumer protection advocates have been warning about rent-to-own contracts for years because they can drive low-wage earners into debt. The BBC even accused BrightHouse of deliberately luring people with psychological problems and learning disabilities into contracts they weren’t capable of properly understanding. Britain’s FCA also opened an investigation into BrightHouse’s business practices, and at the end of October the chain agreed to pay some 15 million pounds in redress to around a quarter of a million customers following the agency’s action.
Even if, as officials working on behalf of the queen said when contacted, the duchy “was not aware that Dover Street VI Cayman Fund LP was investing in BrightHouse,” the episode could still prove embarrassing. It’s also unclear whether the investment was even lucrative. The Paradise Papers show only one dividend payment from the Cayman Islands fund in 2008. Fund managers wrote they were pleased to announce investors would receive a total payout of $30 million, one that would mean a dividend of $360,000 for the Duchy of Lancaster. That would be the equivalent of around 275,000 pounds today, meaning 860 BrightHouse vacuum cleaners – or 1,700 Henry Xtras if purchased at their true retail price.
The duchy said the stake in the Dover Street fund would be maintained for another two to three years. Investors, duchy officials wrote it a statement, “commit to a fund for a given period and are not party to its ongoing investment decisions.”
Public documents do not show whether the fund still has holdings in BrightHouse. And the retail chain famous for luring its customers into debt is now struggling with debt itself, having trouble servicing millions in loans of its own.