Benefit cap, targeted childcare and local CTR use the wrong UC earned income figure #1986

Problem

Three other rules use Universal Credit "earned income", and each computes it differently from the UC means test. All three predate #1949 (the fix for #1942) and are not caused by it. #1949 adds uc_individual_earned_income, the per-person figure net of the person's own tax, NI and pension contributions and before the work allowance, which is what each of them needs.

1. Benefit cap earnings exception still deducts the whole unit's tax

policyengine_uk/variables/gov/dwp/is_benefit_cap_exempt_earnings.py computes its own figure:

uc_earned = benunit.sum(employment_income + self_employment_income - income_tax - national_insurance)
earnings_threshold = 10_152

• That subtracts every member's income tax on all income and all NI, including voluntary Class 3. It is the UC earned income deducts the whole benefit unit's tax, including tax on pensions and other unearned income #1942 bug in a second place.
• It deducts no pension contributions.
• The threshold is hard-coded at the 2025-26 figure for every year.

Law, UC Regs 2013 reg 82 (https://www.legislation.gov.uk/uksi/2013/376/regulation/82, read 2026-10-01):

(1) The benefit cap does not apply to an award of universal credit in relation to an assessment period where— (a) the claimant's earned income or, if the claimant is a member of a couple, the couple's combined earned income, is equal to or exceeds the amount of earnings that a person would be paid at the hourly rate set out in regulation 4 of the National Minimum Wage Regulations for 16 hours per week, converted to a monthly amount by multiplying by 52 and dividing by 12; ...

(4) "Earned income" for the purposes of this regulation does not include income a person is treated as having by virtue of regulation 62 (minimum income floor).

Counterexample (run on #1949's branch, 2025): a London couple with four children and private rent of £36,000. One partner earns £10,300; the other has no earnings and pays £923 of voluntary Class 3.

• The model gives is_benefit_cap_exempt_earnings false, a cap reduction of £5,089.80 and UC of £21,277.40.
• With the Class 3 set to 0 the couple is exempt and UC is £26,367.20.
• The earner's own earned income is £10,300 in both runs, and 16 × NLW × 52 from the model's own parameter is £10,158.72.

Enhanced FRS 2026, reviewer's real runs against #1949's head:

• Using the per-person tax and NI: about 10k more UC units become earnings-exempt, with no change in UC.
• Also deducting pension contributions, and taking the threshold from the NLW parameter (43.9k fewer exempt units): together 6 records (6.1k units) lose £18.3m of UC in 2026. The split between the two is withheld because one part rests on fewer than three records; Use each rule's own Universal Credit earned income in the benefit cap, targeted childcare and local CTR #1999 has the full table.

Fix sketch: per person, max(0, earnings − uc_income_tax_on_earnings − uc_national_insurance_on_earnings − pension_contributions), summed over the unit, without the minimum-income-floor uplift (reg 82(4)); threshold from the National Living Wage parameter.

2. Targeted childcare (2-year-old offer) tests earnings after the work allowance

meets_universal_credit_criteria_for_targeted_childcare_entitlement.py compares uc_earned_income, which is net of the work allowance, with the £15,400 limit.

Law, SI 2014/2147 reg 1(3)(a) (https://www.legislation.gov.uk/uksi/2014/2147/regulation/1, read 2026-10-01):

"earned income" means income for the purposes of Chapter 2 of Part 6 of the Universal Credit Regulations 2013

The work allowance is in reg 22 (Part 4, the award calculation), not Part 6 Chapter 2.

Counterexample (run on #1949's branch, 2026): a single parent aged 30 with a child aged 2, earning £17,000, with council rent of £9,600.

• Earned income before the work allowance is £15,759.60, over the £15,400 limit.
• uc_earned_income is £10,635.60 after the £5,124 work allowance, so the model says the criterion is met.

Enhanced FRS 2026 (reviewer's real run): switching to the pre-work-allowance sum cuts eligible units by 102k (28 records). Entitlement amounts and household net income do not change.

Fix sketch: use the sum of uc_individual_earned_income; add YAML cases either side of the limit.

3. Local CTR schemes count UC earnings after the work allowance

council_tax_reduction/_legacy.py sets a UC claimant's income to uc_earned_income + uc_unearned_income + universal_credit. The Kingston, Merton, Newham and Westminster scheme texts, as read in review, use the Secretary of State's calculation of the claimant's income and do not subtract a work allowance. The scheme texts should be re-read when fixing.

Counterexample (reviewer's run, 2026): a London single parent with a child aged 6, earning £12,000, with council tax of £1,800. Merton, Kingston and Westminster give CTR of £1,181.16 on the model and £156.36 with earnings before the work allowance. The difference is 20% × £5,124.

Enhanced FRS 2026: all four local CTR variables total £0, so this affects household calculations only.

Notes

• These were found in review of Deduct only each person's own tax and NI on earnings from UC earned income #1949. Stack on it if it has not merged.
• Each fix needs YAML tests from the law, property tests, a real Enhanced FRS run, and the Axiom mirror.