MPs have called for sweeping changes to the royal accounts - and urged Chancellor Gordon Brown to explain why the Queen and the Prince of Wales get big tax breaks.

The demands are made in the first-ever inquiry into Prince Charles' £505m Duchy of Cornwall estate and the Queen's £308m Duchy of Lancaster estate.

The report, by the powerful Public Accounts Committee, the Commons' spendingwatchdog, concludes: "The Duchies do not pay corporation or capital gains tax.

"It would be useful for the Treasury to provide justification for the tax position of the Duchies, as distinct from that of The Queen and The Princeof Wales.

"There should be an assessment of how well the surpluses of the two Duchies correspond to the respective needs of the Households of The Queen and the Prince of Wales."

The report points out that the current arrangements date back to the 14th Century, which meant the income received by the Royals is "an accident of history".

It adds: "After more than 600 years, it would seem sensible for the Treasury to review whether these arrangements remain appropriate."

In particular, their "favourable tax position" had an impact on their "competitive position in the property and other markets in which they operate".

It was revealed last month that the Prince of Wales enjoyed an 11 per cent boost to his income from the Duchy of Cornwall last year, to £13,274,000. The Duchy of Lancaster's surplus increased by 44 per cent between 1999 and 2004, while the Duchy of Cornwall's rose by 72 per cent.

Prince Charles is entitled to the profits from the Duchy of Cornwall, which he spends on his public duties and on personal expenditure, including money for his wife and sons Princes William and Harry.

But the MPs expressed surprise that the Prince was allowed to decide how much income should be raised.

Clarence House insisted there was no conflict of interest in the Prince's role.

A spokesman for Charles said: "We will have to consider the recommendations fully but this (the Duchy) is a very effectively run organisation which is doing a good job.

"The capital assets, which he has not got access to, have increased by 80 per cent over the last six years."

The heir to the throne is also at the centre of a "cronyism" row, because his new sister-in-law has benefited from a lucrative contract.

Annabel Elliot, sister of Camilla, was paid to renovate three of the Duchy's properties in the West Country.