Instrument drawn to the special attention of the House
Administration of Estates Act 1925 (Fixed Net Sum) Order 2023 (SI 2023/758)
Date laid: 5 July 2023
Parliamentary procedure: negative
This Order increases the fixed net sum, which is the amount that a surviving spouse or civil partner receives if a person who also has descendants dies intestate, from £270,000 to £322,000. The fixed net sum is designed to balance the interests of the surviving partner and the descendants. Increases in the sum should follow a mechanical process, set out in primary legislation, and which the Ministry of Justice (MoJ) must implement within 21 days of an inflation index rising by more than a certain percentage. However, the threshold was passed in December 2022 and MoJ only made this Order in July 2023. This means that MoJ has breached the law: an inexcusable error. As a result, some estate beneficiaries may have lost out because they have received amounts that are significantly lower than they would have been entitled to, had the legislation been complied with. Some beneficiaries of future estates may also lose out. MoJ has not yet said how it will deal with this situation, stating that it is still considering all options available..
The Explanatory Memorandum (EM) laid with the Order was deficient in several respects. Most importantly, the EM did not acknowledge that the uprating process breached the legislative requirements. MoJ has agreed to redraft the EM. However, providing essential, accurate and not misleading information on the background to an instrument should not require our intervention. We are writing to the Minister concerned to request further information on how the deficiencies in this EM arose, as well as on MoJ’s timetable for resolving the situation.
This Order is drawn to the special attention of the House on the ground that the explanatory material laid in support provides insufficient information to gain a clear understanding about the instrument’s policy objective and intended implementation.
Background
14.If a person dies intestate—that is, without leaving a valid will that covers their entire estate—and has both a surviving spouse or civil partner and surviving descendants (children, grandchildren etc), there are laws in place that dictate how the estate is distributed. Specifically, the person’s descendants inherit the entire estate apart from an amount known as the ‘statutory legacy’, or alternatively as the ‘fixed net sum’, which goes to the surviving partner. The Ministry of Justice (MoJ) states this is “designed to protect the interests of the surviving spouse/civil partner, but also to balance them against the interests of the children of the deceased person”.
15.Prior to this Order, the fixed net sum was £270,000. This Order increases the sum to £322,000.
Why is the fixed net sum increasing?
16.Procedures for when and how the fixed net sum should be increased are laid down in primary legislation. The Administration of Estates Act 1925 (“the 1925 Act”), as amended by the Inheritance and Trustees’ Powers Act 2014, places a responsibility on the Lord Chancellor to change the fixed net sum periodically by way of statutory instrument and sets out a formula that must be used in doing so.
17.The formula is set out in Schedule 1A of the 1925 Act. The Schedule states that if a particular inflation index increases by more than 15% since the fixed net sum was last revalued, the Lord Chancellor must make an order to increase the sum in line with the increase in that inflation index, rounded up to the next £1,000. The Schedule does allow the Lord Chancellor to increase the sum in other circumstances and by other amounts, but MoJ is not seeking to exercise those provisions in this Order.
18.According to the 1925 Act, the order to increase the sum must be made within 21 days of the publication of the relevant inflation data.
Why has MoJ breached the legislation?
19.In operating the formula, MoJ uses as an inflation index the Consumer Prices Index including owner occupiers’ housing costs (CPIH), published by the Office for National Statistics. At the time the fixed net sum was last revalued, in November 2019, CPIH was 108.5.12
20.The CPIH figure for November 2022, published on 14 December 2022, was 124.8, exceeding the 15% threshold.13 Hence, MoJ should have made an order to increase the sum in early January 2023. However, it did not do so; this Order was not made until 5 July 2023. This means that MoJ is in breach of the requirements of the 1925 Act. For a government department to breach the law in this way is an inexcusable error.
What are the implications of the breach?
21.Had MoJ made an order in January 2023, based on the November 2022 inflation data, it would have increased the fixed net sum from £270,000 to £311,000, and this would have come into force in late January 2023. Instead, this Order brings in a new level for the fixed net sum of £322,000, based on the May 2023 inflation data, coming into force on 26 July 2023.
22.Hence, any estate which has been distributed using the fixed net sum rules between late January 2023 and 26 July 2023 may have provided a payment lower than it should have been to the surviving spouse or civil partner. Such partners could have lost out by £41,000.
23.Further, had MoJ implemented the increase in January 2023, the fixed net sum would have remained at £311,000 until the inflation index increased by a further 15% (or one of the other provisions in the 1925 Act was activated). Hence, from 26 July 2023 onwards, payments to surviving spouses or civil partners will be up to £11,000 higher than they would have been. Correspondingly, payments to descendants will be up to £11,000 lower.
24.The breach has created, and will continue to create, ‘losers’ and ‘winners’ compared to if the legislation had been followed, with significant sums of money at stake in each case.
How many people are affected?
25.We asked MoJ how many cases have been and might continue to be affected. MoJ was not able to provide any estimates. It said that “unfortunately no central records are kept of the numbers of people in receipt of the fixed net sum”. It also noted that there could be complications, such as whether the family home was held on joint tenancy such that the deceased’s interest would have passed on survivorship and not formed part of the estate.
26.MoJ noted that for an estate to be affected, it would have to fulfil all the following conditions:
- The person died intestate;
- the residual estate must be worth more than £270,000—MoJ quoted figures from 2007–2008 that suggested 90% of estates were then worth less than this sum; and
- there was both a surviving partner and surviving dependants.
27.We accept that estimating the extent of the impact may be difficult. However, it is concerning that MoJ appears to have no idea of the number of people affected and is relying on data that is 15 years old for even basic underlying information.
How is MoJ dealing with the situation?
28.MoJ has provided limited information on how it is dealing with the situation resulting from the legislative breach. For example, the Explanatory Memorandum (EM) laid with the instrument said only that “the Government will be taking steps to communicate the position on the sum not being increased following the trigger point being reached in December 2022 and reviewing any further steps to be taken as a result”. In response to our questions, MoJ added that “the Government needs to take time to properly consider the form and nature of the review of this situation and of the legislation itself, and what next steps may be appropriate. It would be premature to speculate on the timescale at this stage, but any action and reforms arising will be made public”. MoJ also told us that it had bought the matter to the attention of relevant stakeholders such as the Law Society, Bar Council, Society of Trust and Estate Practitioners and the Chartered Institute of Legal Executives.
29.MoJ’s breach of the law has led to some people losing out. MoJ has not yet said what it will do about these losses; for example, whether it will make compensation available. It is reasonable, as an initial step, for MoJ to consider the available options, but we are keen to understand more about the timescales for deciding what action will be taken. We will be writing to the Minister to request further details on this point, and the House may also wish to press the Minister on MoJ’s intended response.
30.As described in the previous section, MoJ has stated that no central records are kept of those in receipt of the fixed net sum. Given this, if remedial action is deemed necessary following MoJ’s review, it is not clear how those affected will be identified and contacted.
Failure to disclose the breach
31.The version of the EM laid with the Order was deficient in several respects. Most significantly, it did not acknowledge that the uprating process had breached the requirements of the 1925 Act. This is a critical piece of information in understanding the background to the instrument, and MoJ has not explained why it was absent.
32.In response to our challenges, MoJ agreed to revise the EM to acknowledge the breach. However, it should not require our intervention to ensure that Parliament and the public have access to essential information about instruments. Departments should make sure EMs are ‘right first time’.
Misleading information on inflation rates
33.In our view, the original EM contained misleading information about the movements in the inflation index in the later months of 2022 and early 2023. The EM recognised that the trigger point of a 15% increase was reached in the November 2022 data, but continued that “inflation was volatile, and the figure for January 2023 [ … ] fell before rising again”. This could be taken to imply that the inflation index for January 2023 fell below the 15% threshold, when this was not the case; the index has been more than 15% above its November 2019 level continuously since November 2022. Even if it had not been, we do not understand the relevance of the January 2023 data, as the 1925 Act simply requires a rerating within 21 days of the threshold being reached.
34.MoJ has also agreed to revise the EM in this area but, again, EMs laid alongside instruments should not mislead the reader or obscure issues with the policy.
Inaccurate description of inflation index
35.The original EM stated that the inflation index MoJ was using was “the Consumer Price Index (CPI)”. Following our questions, it transpired that MoJ was, in fact, using the Consumer Prices Index including owner occupiers’ housing costs (CPIH), which is a different index to CPI. The EM should contain accurate references to facilitate scrutiny.
Conclusion
36.This Order increases the amount that surviving spouses or civil partners receive if a person dies intestate and also has surviving dependants. MoJ failed to follow the process, set out in primary legislation, for increasing the sum, leading to losses for some beneficiaries compared to if the legislation had been followed.
37.We are disappointed that the EM laid with the instrument did not set out this policy background and was also deficient in several other respects. We have recently highlighted the prevalence of poor-quality information in EMs; for example, we have made clear that EMs are not press notices and that they “should not just announce a policy but provide a justification for it and set out the consequences of its implementation”.14 We have also stated that departments should “acknowledge and address significant concerns” about the policy being implemented by an SI.15 By now, departments should be clear on what is expected, but these requirements were not complied with in this instrument. When writing to the Minister, we will also ask for an explanation of why the EM was so uninformative. The House may wish to enquire further on this point, as well as on what MoJ’s plans and timetables are for dealing with the situation—including whether it is considering compensating those who have lost out.
12 Office for National Statistics, ‘CPIH Index: All Items 2015=100’: https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l522/mm23 [accessed 13 July 2023].
13 Office for National Statistics, ‘Consumer price inflation, UK: November 2022’: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/november2022 [accessed 13 July 2023].
14 SLSC, Interim Report on the Work of the Committee in Session 2022–23 (42nd Report, Session 2022–23, HL Paper 205), para 37.