The cost to the taxpayer of supporting the monarchy fell £1.8 million in the last financial year, Buckingham Palace accounts show.
The Queen's official expenditure decreased by 5.3% from £33.9 million in 2009/10 to £32.1 million in 2010/11, according to the royal public finances annual report.
The Queen's Civil List spending fell from £14.2 million to £13.7 million, while there was a cut in spending on property services from £15.4 million to £11.9 million.
Royal travel costs rose from £3.9 million in 2009/10 to £6 million in 2010/11 but Buckingham Palace said the sale of the Queen's helicopter in 2009/10 resulted in lease repayments of £1.5 million to royal travel. Excluding this income, expenditure on royal travel would have been £5.4 million in that year, according to the accounts.
Sir Alan Reid, keeper of the privy purse, said the fall in spending had been achieved through increased income generation, deferral of property maintenance and a pay freeze for staff which will continue this year.
But he added: "Over the past five years, the Queen's official expenditure has reduced by 19% in real terms and while the royal household will continue to identify efficiencies, it will be very difficult for overall expenditure to reduce very much further without impacting on the royal household's activities in support of the Queen and the long-term health of the estate."
Further cuts in funding will mean that the budget for projects in the annual works programme is likely to be reduced from £4 million in 2010/11 to around £3 million in 2012/13, according to the report. "This will inevitably lead to the deferral of works and will increase the backlog," the report said. "Furthermore, it is likely that the programme will become more reactive than planned."
The reduction in funding means that "key" projects will not be undertaken, the report said. These include more extensive renewal of lead and slate roofs at Buckingham Palace and Windsor Castle - it is likely that only one area will be achieved in each financial year at each site rather than three. Refurbishment of the state rooms at Buckingham Palace and Windsor Castle will not be undertaken, the report said.
Other projects affected include replacement of existing heating and electrical services at Buckingham Palace, with associated asbestos removal, which will now take 15 to 20 years to complete.
Buckingham Palace said the figures for the royal public finances were calculated using the new sovereign grant system which will replace the current funding streams from the civil list and grants-in-aid for royal travel, palace maintenance and communications.