MPs tell cash-strapped Queen to tighten her belt

Palace aides have told ministers the monarchy's finances have been eroded by inflation and more money is needed to pay for the royal family's official duties and the upkeep of its palaces.

But the credit crunch has ravaged the Government's budgets and it says it cannot provide extra funding.

As the dispute grows behind closed doors, royal officials are reminding ministers of their constitutional duty to protect the Queen's financial security.

They say Parliament must increase both the £15 million it pays to maintain the Royal Estate, and the £7.9 million for the Civil List, which pays for the senior royals' official functions.

Without a state bail-out, the Queen will be unable to balance her books within the next three years, an investigation by accountants Baker Tilly claims.

If the monarchy keeps spending at the current rate, by 2011 soaring prices will take the bill for maintaining the Royal Household to more than double the £7.9 million allocated each year.

This year's Buckingham Palace accounts show Civil List expenditure will reach £14.4 million.

Royal aides say there is already a £ 32million black hole in the accounts, with the cash needed to pay for a backlog of repairs. The Treasury will only say that an announcement on the Civil List will be made "in due course".

A Palace source said: "I am not convinced [ministers] are listening very carefully to our arguments. It is a major disappointment."

Royal officials have called for a VAT exemption on the payment of services rendered to the Queen, which is applied to government departments.

Palace accounts show the Queen's reserve, which has been drawn on extensively in recent years, will be wiped out by 2011. Some of the Civil List is invested in the stock market, which has tumbled.

The Department for Culture Media and Sport, which decides the monarchy's funding, saw the total bill rise to £40million last year. Amid criticism of the amount spent on travel, some MPs have called for the royal accounts to be publicly audited.

Meanwhile, it emerged today that Downing Street is proposing to allow Catholics to take the throne. Plans have been drawn up to end their 300-year-old exclusion and end the requirement that succession automatically passes to a male. No 10 is said to want the legislation passed in a fourth term.