The Blue Ensign is a flag, one of several ensigns and can be used either plain or defaced with a badge or emblem. The evolution of the Blue Ensign followed that of the Union Jack.
Prior to the reorganization of the Royal Navy in 1864, the plain blue ensign had been the ensign of one of three squadrons of the Royal Navy. This changed in 1864, when an order in council provided that the Red Ensign was allocated to merchantmen, the Blue Ensign was to be the flag of ships in public service or commanded by an officer in the Royal Naval Reserve, and the White Ensign was allocated to the Navy.
Thus after 1864, the plain Blue Ensign without any defacement (in most instances) or modification was permitted to be worn, instead of the Red Ensign.
This is the Ensign of the Royal Naval Reserve although permission has been given by the British Admiralty and later by the British Ministry of Defence (Navy) for its use by certain yacht clubs.