Sixth Report Contents

Instruments drawn to the special attention of the House

Draft Non-Contentious Probate (Fees) Order 2018

Date laid: 5 November 2018

Parliamentary procedure: affirmative

Non-Contentious Probate (Amendment) Rules 2018 (SI 2018/1137)

Date laid: 5 November 2018

Parliamentary procedure: negative

The Ministry of Justice (MoJ) has laid two instruments about non-contentious probate: a negative instrument which modernises and improves the efficiency of the probate service and an affirmative instrument that would increase the fees for that probate service disproportionately to the cost of delivering the service. Whilst welcoming the first, the Committee has very serious concerns about the second.

The Rules (SI 2018/1137) enable the introduction of a more efficient and convenient on-line application process for a grant of probate leading MoJ to anticipate a reduction in the administrative cost of probate of about £1 million per year as a result of these changes (an average of £9.30 per application).

In contrast, the draft affirmative instrument increases the fees for those same applications for probate on a sliding scale which bears no relation to recovering the actual cost of providing the service. Although the scale of fees has been reduced from that set out in a previous draft instrument laid in 2017, which had a top fee of £20,000 instead of the current top fee of £6,000, this still represents a significant move away from the principle that fees for a public service should recover the cost of providing it and no more. The Government estimate that the revised fee structure will generate over £145 million in additional fee income in 201920, which they plan to use to pay the running costs of other parts of Her Majesty’s Courts and Tribunal Services. We wonder whether the House envisaged the power being used for this degree of cross-subsidy when the Act was passed. This Committee’s concern about the revised fee structure remains the same as it was for the draft instrument laid in 2017: “while section 180 of the Anti-social Behaviour, Crime and Policing Act 2014 permits the levying of enhanced fees, we are surprised to see it used to this extent. To charge a fee so far above the actual cost of the service arguably amounts to a “stealth tax” and, therefore, a misuse of the fee-levying power.”

That the MoJ Order seeks to increase these fees by so much at the same time as laying the Rules (SI 2018/1137) that will reduce the unit cost of an application by an average of £9.30 only serves to highlight the Committee’s concerns about the disproportionate increase in the fee levels proposed by the affirmative instrument.

These instruments are drawn to the special attention of the House on the ground that they give rise to issues of public policy likely to be of interest to the House.

Background

3.Probate is the process in England and Wales by which the High Court grants or confirms the authority of a personal representative1 to administer the estate of a deceased person. Non-contentious probate business is where there is no dispute as to the applicant’s right to the grant: for example, where there is no dispute as to the validity of the will. There are about 270,000 such applications made annually and, of these, about 110,000 are personal applications and 160,000 are made through solicitors or probate practitioners.

Non-Contentious Probate (Amendment) Rules 2018 (SI 2018/1137)

4.This negative instrument has been laid by the Ministry of Justice (MoJ) with an Explanatory Memorandum (EM). Following extensive piloting of an on-line application process for personal applications which gained an approval rating with users of 95%, SI 2018/1137 will enable the roll-out of the on-line application process throughout England and Wales.

5.Amongst other things, the amendments will allow on-line applications for probate to be made by an unrepresented applicant; enable all applications for probate to be verified by a statement of truth on-line (instead of an oath which has to be taken in person) and to be made without the will having to be marked (signed by the applicant). The changes also extend time limits from eight to 14 days in the caveat process (where someone else wishes to keep track of, or object to, the grant of probate), and allows caveats to function electronically. It also makes some improvements to other parts of the system, for example extending the powers of district probate registrars, allowing hearings to be conducted remotely and facilitating the issue of directions (instructions to the parties) in relation to hearings.

The effect of the changes

6.The EM to SI 2018/1137 makes it clear that the main benefits to the applicant are from increased efficiency and speed, in particular by reducing errors in the application process. It is also more convenient, for example by removing the time and expense of attending on a person authorised to administer an oath before an application can be submitted.

7.Paragraph 12.8 of the EM states that the impact of the changes on the public sector introduced by SI 2018/1137 will be to reduce the cost of administering the probate process: “The changes made by the amending instrument are … expected to realise in total over £14.6 million in public expenditure by March 2025 (of which the new personal applicant service is expected to save £7.4 million).” MoJ confirms that these amendments will facilitate savings of approximately £1 million per year in administrative costs for the Probate Service, which equates to an average £9.30 reduction in the unit cost of processing each personal application made.

8.We welcome these innovations which not only make the process more efficient but free up the executor’s time during the particularly difficult period following a death.

Draft Non-Contentious Probate (Fees) Order 2018

9.This draft affirmative instrument has been laid by the MoJ under sections 92(1) and (2) and 108(6) of the Courts Act 2003, and section 180(1) of the Anti-Social Behaviour, Crime and Policing Act 2014, and is accompanied by an EM and an Impact Assessment (IA). This draft, laid on 5 November 2018 with a scale of fees rising to £6,000, replaces a previous draft laid on 24 February 2017 which included a scale of fees rising to £20,000. The previous instrument was drawn to the special attention of the House in our 28th Report of Session 2016–17.2 The original draft of the instrument was debated in the House of Commons on 19 April 2017,3 and remained on the Lords Business list for all of the intervening period but was not put forward for debate.

Cost of providing the Probate Service

10.Paragraph 2 of the IA states that current probate fees already achieve full recovery of the costs of running the Probate Service:

“The current fees charged for a grant of probate are £215 if an application is made by an individual (around 40% of total applications in 2017) and £155 for where it is made by a solicitor (around 60% of all applications). A ‘personal’ applicant is charged a higher fee compared to those submitted via a solicitor because of the additional administrative work the Probate Service has to undertake to process these types of applications. The existing fees reflect average administration costs and currently generate around £50 m per annum in income for HM Court and Tribunals Service (HMCTS).” [emphasis added]

Changes proposed by this Order

11.The MoJ proposes raising the value of estate at which probate fees start to be charged from £5,000 to £50,000, which means that an additional 25,000 estates a year will not be subject to a fee (thereby reducing the Probate Service’s revenue by approximately £4-5 million a year). For those who will be subject to a fee, the draft Order proposes to introduce a sliding scale of charges rising with the value of the estate, to a maximum of £6,000.

Table 1: Proposed fee bands for probate applications

Value of estate (before inheritance tax)

Proposed Fee

Up to £50,000 or exempt from requiring a grant of probate

£0

£50,000–£300,000

£250

£300,000–£500,000

£750

£500,000–£1m

£2,500

£1m–£1.6m

£4,000

£1.6m–£2m

£5,000

Above £2m

£6,000

12.The IA states that 80% of the executors for estates that are subject to a fee will pay £750 or less (which is somewhere above three times the cost of the service) and for estates above £2 million fees will rise by £5,785 (or 27 times the actual cost). Under this revised fee structure MoJ states that no estate would pay a fee greater than 0.5% of its value.

13.Paragraph 12.2 of the EM states that it is estimated that these proposals will generate over £145 million in additional fee income in 2019–20, rising each subsequent year in line with increases in estate values.

Policy objectives

14.The Government state that the additional money generated by these fee increases will be used to subsidise other parts of HMCTS. Paragraph 7.2 of the EM says:

“This instrument increases fees for the grant of probate for two primary reasons. First, it is right to introduce a more progressive fee scheme where those who can afford to pay more are asked to do so; second, it is necessary to fund the wider courts and tribunals system to ensure an efficient and effective service. This additional income is ring-fenced to the courts and tribunals service and therefore allows us to ensure we avoid charging court and tribunal fees in inappropriate cases and help maintain access to justice for all.”

Objective 1 – cross-subsidy within the Probate Service

15.Paragraph 3.1 of the EM argues that section 180(1) of the Anti-social Behaviour, Crime and Policing Act 2014 provides an explicit power to “prescribe a fee of an amount which is intended to exceed the cost of anything in respect of which the fee is charged”. This Committee wonders whether the House envisaged that power being used to this degree when the Act was passed.

16.We note, however, that in the standard guidance issued to government departments, Managing Public Money,4 paragraph 6.3.6 states: “different groups of customers should not be charged different amounts for a service costing the same, eg charging firms more than individuals. Similarly, cross subsidies are not standard practice, eg charging large businesses more than small ones where the cost of supply is the same”. By lifting the point at which fees become payable to estates valued at more than £50,000, fee payers would already be providing a substantial cross-subsidy to run the Probate Service for those less well off.

Objective 2 – cross-subsidy outside the Probate Service

17.The Government are proposing to generate profits from the Probate Service, estimated at £145 million per year, to be used to cross-subsidise other functions of HMCTS. MoJ argues that the enabling power in section 92 of the Courts Act 2003 gives it authority to prescribe fees to cross-subsidise other parts of HMCTS. Paragraph 6.4.5 of Managing Public Money says:

“Cross-subsidies always involve a mixture of overcharging and undercharging, even if the net effect is to recover full costs for the service as a whole. So cross-subsidised charges are normally classified as taxes. They always call for explicit ministerial decision and parliamentary approval through either primary legislation or a s102 order.”

18.Although, at a maximum of £6,000, the scale of fees proposed in this version of the draft Order is lower than the maximum of £20,000 proposed in the original draft, the underlying principle behind the charge has not changed. The statement at paragraph 7.3 of the EM that “even the highest fee in our scheme would represent no more than 0.5% of the value of the estate” also gives the fee the appearance of a tax rather than a fee linked to the actual cost of providing the service.

19.In considering the policy the House may wish to bear in mind that those with higher value estates will already be contributing to the Exchequer through Inheritance Tax and Stamp Duty of up to 12% if a property is sold. It is also worth remembering that such estates are often divided between a number of beneficiaries, many of them charities.

Conclusion

20.The proposed scale of fees does not conform with the normal requirements set out in Managing Public Money. The Committee therefore feels that the MoJ needs to explain its basis for taking this course rather more clearly so that the House may better understand its approach. This view is underpinned by our recollection that the Joint Committee on Statutory Instruments published a report on the previous draft of this instrument that questioned the MoJ’s assumptions on the scope of the powers cited.5

21.The Committee takes the view that, though the scale of the individual fees has been reduced, the principle underlying the policy has not changed from the first version. We therefore reiterate the conclusion expressed in our 28th Report of Session 201617: “while section 180 of the Anti-social Behaviour, Crime and Policing Act 2014 permits the levying of enhanced fees, we are surprised to see it used to this extent. To charge a fee so far above the actual cost of the service arguably amounts to a “stealth tax” and, therefore, a misuse of the fee-levying power.”

22.That the draft MoJ Order seeks to increase these fees by so much at the same time as laying the Rules (SI 2018/1137), that will reduce the unit cost of an application by an average of £9.30, only serves to highlight the Committee’s concerns about the disproportionate increase in the fee levels proposed by the affirmative instrument.

Draft Payment Accounts (Amendment) (EU Exit) Regulations 2018

Date laid: 6 November 2018

Parliamentary procedure: affirmative

In line with a 2014 EU Directive, the Payment Accounts Regulations 2015 established the right of access to a basic bank account for customers legally resident in the EU. The nine largest current account providers in the UK (“the designated providers”) must offer these accounts. In amending the 2015 Regulations, this instrument proposes to change the residency eligibility criteria for customers of basic bank accounts because it treats the EU as a third country. The nine designated providers will have discretion whether to keep open, or close, existing basic bank accounts for customers legally resident in the EU after the UK leaves it.

HM Treasury estimates that, if a UK provider exercises this discretion to close such an account, this may affect only a few hundred account-holders, and describes the overall impact on consumers as minimal. In our view, individuals who find that their designated provider chooses to close their account may well face a good deal of inconvenience (even if they are able to open such an account with another provider). The House may wish to press the Minister for reassurance that such inconvenience may not cause those affected real financial difficulty.

We draw these Regulations to the special attention of the House on the ground that they give rise to issues of public policy likely to be of interest to the House.

Payment Accounts Regulations 2015

23.The Payment Accounts Regulations 2015 (SI 2015/2038: “the 2015 Regulations”) transposed the 2014 Payment Accounts Directive (“the 2014 Directive”)6 into UK law. In the Explanatory Memorandum (EM) to these Regulations, HM Treasury (HMT) says that the 2015 Regulations set out the eligibility criteria for payment accounts with basic features (more commonly known as basic bank accounts in the UK, offering basic facilities for receiving money and settling bills, without overdraft facilities) and designated the nine largest current account providers in the UK who must offer these accounts.7 They established the right of access to a payment account with basic features for customers legally resident in the EU, who did not currently hold a payment account with a UK credit institution or who were not eligible for any other payment account at the UK credit institution at which they were applying for a payment account. They required that these accounts were fee-free for services offered in sterling and that EU currency services could be charged for at a reasonable fee.

Draft Payment Accounts (Amendment) (EU Exit) Regulations 2018

24.In the EM, HMT says that these draft Regulations propose amendments to the 2015 Regulations to ensure that they continue to operate effectively in the UK once the UK has left the EU, in the event of a no-deal exit: they remove references to the EU which will no longer be appropriate and treat the EU as a third country. HMT comments that the changes for payment service providers and consumers will be minimal.

25.In particular, the Regulations propose to change the residency eligibility criteria for customers of payment accounts with basic features because they treat the EU as a third country. The nine designated providers of these accounts will have discretion whether or not to offer such accounts to customers legally resident in the EU, but they must continue to offer them to customers legally resident in the UK who meet the other established eligibility criteria. The nine designated providers will also have discretion whether to keep existing payment accounts with basic features open for customers legally resident in the EU, but the Regulations propose no change to the provisions governing the closure of such accounts for customers who are legally resident in the UK.

Impact on existing UK basic bank account-holders resident in the EU

26.In the EM, HMT notes that the changes could affect existing holders of UK basic bank accounts who are resident in the EU, as UK providers will no longer be obliged to keep these accounts open. We obtained further information from HMT about this possible impact, which we are publishing at Appendix 2. We have been told that a UK citizen who is legally resident in the EU may hold a basic bank account with a UK provider, and that under this instrument a UK provider would be allowed to close their account; HMT added that, in this event, the customer should be able to get a basic bank account with an EU-based provider.

27.We also obtained further information about the statement in the EM that the Government expect that this will affect very few accounts, in the region of the low hundreds. HMT has said that it does not know the citizenship of these customers, and that it does not consider the estimated figure of the low hundreds to be a significant number because there are almost eight million basic bank accounts held at UK banking providers.

28.We note as well that, under the 2014 Directive as implemented, individuals living in one EU Member State have had the right to open a basic bank account in another Member State (for example, in anticipation of being employed and paid in that other State), through a designated bank operating in that other State. The amendments proposed by these Regulations affect only UK provision of basic bank accounts. The effect of leaving the EU on a UK customer’s right to a basic bank account in an EU Member State will depend on how that State has implemented the Directive. If a Member State has specified in its local law that eligibility is based on EU residency (as the UK chose to do), a UK customer legally resident in the UK would no longer be automatically eligible for a basic bank account within the EU, once the UK has left the EU.

Conclusion

29.It may be understandable that HMT describes the impact of these changes on consumers as minimal. However, even if it is a correct estimate that only a few hundred account-holders will be affected, these individuals may well face a good deal of inconvenience if they find that their designated provider chooses to close their account, obliging them to approach another provider. The House may wish to press the Minister for reassurance that such inconvenience may not cause those affected real financial difficulty.


1 - an executor if the deceased left a valid will, or an administrator if the estate died intestate or no executor is available.

5 Joint Committee on Statutory Instruments 26th Report, Session 2016–17 (HL Paper 152).

6 Directive 2014/92/EU on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features.

7 The nine designated banks are: Barclays; Clydesdale and Yorkshire Bank; Co-operative Bank; HSBC; Lloyds Banking Group (including Halifax and Bank of Scotland brands); Nationwide; Royal Bank of Scotland (including NatWest and Ulster Bank brands); Santander; and TSB.




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