The Queen is to play her part in the cuts being made throughout the UK, Chancellor George Osborne has announced in his Spending Review.
He said that, having already accepted a one-year freeze in Civil List pay next year, the Queen had also agreed spending cuts of 14% by the Royal household in 2012-13.
But the Royal family will get a special payment of £1m to cover the costs of Diamond Jubilee celebrations in 2012 which, Mr Osborne said, the whole country was looking forward to.
After 2013, the current grants and Civil List payments, which fund the Royals, would be rolled into a single new Sovereign Support Grant, linked to Crown Estate revenue.
Mr Osborne said this was so that "my successors do not have to return to this issue as often as I have had to".
The cash freeze to this year's Civil List was first announced by the chancellor in his June budget.
The Civil List has remained unchanged for the past 20 years at £7.9m.
A palace spokesman said: "The Household obviously has some challenging times ahead, like many areas of government, but we welcome the announcement of the Sovereign Support Grant as a modern, transparent and simpler way of funding the head of state."
Graham Smith from the anti-monarchy organisation Republic said the Household was not facing serious cuts.
"Civil List spending will continue to rise until 2012 as they use their surpluses, and after that a reduction of just 14% is to be imposed, while numerous core government departments are facing cuts of 20%-40%," he said.
"Pegging royal funding to Crown Estate revenue makes no sense at all. The two are not related. Crown Estate revenue has always been there to provide funds for the government."