Reconcile UC deduction and benefit cap components under the protected floor

changelog.d/uc-deductions-floor-reconciliation.fixed.md

@@ -0,0 +1,5 @@
+- Fixed Universal Credit deductions and benefit cap reductions to report what the award actually loses under a protected minimum floor, so the components sum to the reduction applied instead of over-reporting it. Where the floor binds, deductions are met first and the cap reduction absorbs the rest, however heavily the award is capped.
+- Added `uc_benefit_cap_reduction`, the benefit cap reduction applied to a Universal Credit award after the protected floor and bounded by the award, leaving `benefit_cap_reduction` gross for Housing Benefit.
+- Fixed a protected floor above 1 adding money to Universal Credit awards, by clamping the permitted reduction at zero.
+- Fixed Universal Credit deductions applying to benefit units that would not claim Universal Credit.
+- Corrected the effective date of the 25% deductions cap to 12 April 2021, and the one-penny minimum payable citation to Schedule 6, paragraph 3(1)(a) of SI 2013/380.

docs/book/validation/uc-deductions.md

@@ -12,12 +12,14 @@ The implementation separates **latent demand** from the **statutory cap**. `uc_l
 
 Enhanced FRS 2023/24 v1.40.3, against [DWP's Universal Credit deductions statistics](https://www.gov.uk/government/statistics/universal-credit-quarterly-statistics-29-april-2013-to-12-february-2026/universal-credit-deductions-statistics-march-2025-to-february-2026).
 
+Shares below are of **all** UC households, not of those with deductions — the denominator both the model and DWP use.
+
 | Statistic | Model | DWP published |
 |---|---|---|
 | Share of UC households with deductions | 47.0–47.1% | 46–47% |
-| At-cap share, 25% regime (2024) | 13.4% | 13–14% (Mar–May 2025) |
-| At-cap share, 15% regime (2025) | 26.4% | 21% (Jun 2025–Feb 2026) |
-| Above-cap share (last resort) | 1.8% | 2% |
+| At-cap share of all UC households, 25% regime (2024) | 13.4% | 13–14% (Mar–May 2025) |
+| At-cap share of all UC households, 15% regime (2025) | 26.4% | 21% (Jun 2025–Feb 2026) |
+| Above-cap share of all UC households (last resort) | 1.8% | 2% |
 | Mean monthly deduction, 25% regime | £66 | £67–68 |
 | Mean monthly deduction, 15% regime | £50 | £51–54 |
 | Mean annual gain, 25%→15% cap | £421 | £420 (gov.uk) |
@@ -47,7 +49,13 @@ The latent distribution is observed in 2025 and applied to all model years as a
 
 ### The protected floor binds on last resort deductions
 
-The `protected_floor` lever limits combined deductions and benefit cap reductions to (1 − floor) × the standard allowance. It binds on the whole of `uc_deductions`, including the above-cap excess that current law exempts from the deductions cap (last resort and child maintenance deductions). JRF's briefing does not say whether their floor exempts those categories — its worked example involves only cappable deductions and the benefit cap — so this is a modeling choice.
+The `protected_floor` lever limits combined deductions and benefit cap reductions to (1 − floor) × the standard allowance. Where the current-law split already fits inside that allowance, nothing changes. Where it does not, deductions are met first from the protected award, up to the allowance, and the benefit cap reduction absorbs the rest. Both `uc_deductions` and `uc_benefit_cap_reduction` come from one allocation (`_reduction_allocation.py`), so they agree by construction.
+
+JRF specifies the combined limit, not a priority between the two: their [September 2026 briefing](https://www.jrf.org.uk/social-security/a-protected-minimum-floor-in-universal-credit-to-cut-deep-child-poverty) proposes that "the sum of the 'capped amount' and any debt deductions is limited to the difference between a household's standard allowance and the level of the protected minimum floor". Debt first is the modeling choice, for three reasons. Under the Fair Repayment Rate the 15% deductions cap equals the allowance an 85% floor leaves, so cappable deductions never breach the floor on their own, and the policy JRF builds on (extending the Fair Repayment Rate "to all deductions, including the benefit cap") leaves deductions where that rate puts them. JRF's own example (standard allowance £98 a week, a £15 deduction, an £80 cap reduction, total limited to £15) is consistent with it. And it does not depend on how heavily the household is capped: if the deduction were limited by the gross cap reduction, a household capped down to a few pence would have its deduction squeezed to almost nothing even though the floor then removes most of that cap. The award is the same under either priority; only the split differs.
+
+Where deductions alone do exceed the allowance, the floor binds on the whole of `uc_deductions`, including the above-cap excess that current law exempts from the deductions cap (last resort and child maintenance deductions). JRF's briefing does not say whether their floor exempts those categories — its worked example involves only cappable deductions and the benefit cap — so this is a modeling choice.
+
+Both components report what the award actually loses, so `uc_deductions` and `uc_benefit_cap_reduction` sum to the entitlement forgone, and the applied cap reduction never exceeds the award (a £1,000 cap reduction on a £500 award applies £500). `benefit_cap_reduction` itself stays gross: it also drives Housing Benefit, which the Universal Credit floor does not protect. Read `uc_benefit_cap_reduction` for the cap reduction applied to a UC award under a floor reform.
 
 ### Other assumptions
 
@@ -75,7 +83,7 @@ The `protected_floor` lever limits combined deductions and benefit cap reduction
 {"gov.dwp.universal_credit.deductions.protected_floor": {"2026-01-01.2030-12-31": 0.85}}
 ```
 
-A cap of 1 − *x* is equivalent to a protected minimum floor at *x* of the standard allowance for capped deduction types. The dedicated `protected_floor` lever additionally binds on benefit cap reductions, which is where most of JRF's post-Fair-Repayment-Rate effect comes from.
+A cap of 1 − *x* is equivalent to a protected minimum floor at *x* of the standard allowance for capped deduction types. The dedicated `protected_floor` lever additionally binds on benefit cap reductions, which is where most of JRF's post-Fair-Repayment-Rate effect comes from — and, because deductions are met first, where nearly all of the modeled effect lands.
 
 ## Where the assignment lives
 

policyengine_uk/parameters/gov/dwp/universal_credit/deductions/cap.yaml

@@ -1,8 +1,8 @@
-description: Maximum total deductions from a Universal Credit award, as a fraction of the standard allowance. Schedule 6 paragraph 4(1) of SI 2013/380 sets a statutory ceiling of 40%; within it, DWP sets the operational cap administratively - 30% from October 2019 (Budget 2018), 25% from April 2021 (announced for October 2021 at Budget 2020, brought forward at Budget 2021), and 15% (the Fair Repayment Rate) from 30 April 2025, which required no legislative change. Last resort deductions (housing and fuel arrears hardship deductions) and child maintenance deductions - separate categories in DWP guidance - may each exceed the cap (Explanatory Memorandum to SI 2025/387, paragraphs 5.10 to 5.15).
+description: Maximum total deductions from a Universal Credit award, as a fraction of the standard allowance. Schedule 6 paragraph 4(1) of SI 2013/380 sets a statutory ceiling of 40%; within it, DWP sets the operational cap administratively - 30% from October 2019 (Budget 2018), 25% from 12 April 2021 (announced for October 2021 at Budget 2020, brought forward at Budget 2021; DWP Annual Report and Accounts 2020-21), and 15% (the Fair Repayment Rate) from 30 April 2025, which required no legislative change. Last resort deductions (housing and fuel arrears hardship deductions) and child maintenance deductions - separate categories in DWP guidance - may each exceed the cap (Explanatory Memorandum to SI 2025/387, paragraphs 5.10 to 5.15).
 values:
   2015-04-01: 0.4
   2019-10-01: 0.3
-  2021-04-01: 0.25
+  2021-04-12: 0.25
   2025-04-30: 0.15
 metadata:
   label: UC deductions cap
@@ -23,5 +23,7 @@ metadata:
       href: https://assets.publishing.service.gov.uk/media/5e68d0dce90e070ac74f08ea/Budget_2020_Web_Accessible_Complete.pdf#page=73
     - title: HM Treasury, Budget 2021 (25% cap brought forward to April 2021)
       href: https://www.gov.uk/government/publications/budget-2021-documents/budget-2021-html
+    - title: DWP Annual Report and Accounts 2020-21, p.57 (cap reduced from 30% to 25% from 12 April 2021)
+      href: https://assets.publishing.service.gov.uk/media/60fa97498fa8f5043411d83d/dwp-annual-report-and-accounts-2020-2021-web-ready.pdf#page=58
     - title: Universal Credit change brings £420 boost to over a million households (Fair Repayment Rate, 30 April 2025)
       href: https://www.gov.uk/government/news/universal-credit-change-brings-420-boost-to-over-a-million-households

policyengine_uk/parameters/gov/dwp/universal_credit/deductions/minimum_payable.yaml

@@ -1,10 +1,10 @@
-description: Minimum Universal Credit payable after deductions, per assessment period. Schedule 6 of SI 2013/380 provides that deductions must not reduce the amount payable to the claimant below one penny.
+description: Minimum Universal Credit payable after deductions, per assessment period. Schedule 6, paragraph 3(1)(a) of SI 2013/380 provides that deductions must not reduce the amount payable to the claimant below one penny.
 values:
   2015-04-01: 0.01
 metadata:
   label: UC minimum payable after deductions
   unit: currency-GBP
   period: month
   reference:
-    - title: SI 2013/380, Schedule 6 (deductions from benefit and direct payment to third parties)
-      href: https://www.legislation.gov.uk/uksi/2013/380/schedule/6
+    - title: SI 2013/380, Schedule 6, paragraph 3(1)(a) (deductions must leave at least one penny payable)
+      href: https://www.legislation.gov.uk/uksi/2013/380/schedule/6/paragraph/3

policyengine_uk/parameters/gov/dwp/universal_credit/deductions/protected_floor.yaml

@@ -1,10 +1,10 @@
-description: Protected minimum floor in Universal Credit, as a fraction of the standard allowance. When above zero, combined deductions and benefit cap reductions are limited to (1 - floor) times the standard allowance, following JRF's proposal design (their worked example limits the reduction itself to 15% of the standard allowance). Zero - the value under current law, which has no such floor - leaves reductions unlimited. Setting 0.85 models JRF's proposal; this reform-lever parameter encodes no current-law value other than zero. The modeled floor binds on all deductions, including the above-cap excess that current law exempts from the deductions cap (last resort and child maintenance deductions) - JRF's briefing does not state whether their floor exempts those categories, and its worked example involves only cappable deductions and the benefit cap, so treating the floor as binding on everything is a modeling choice rather than a stated feature of the proposal.
+description: Protected minimum floor in Universal Credit, as a fraction of the standard allowance. When above zero, combined deductions and benefit cap reductions are limited to (1 - floor) times the standard allowance, following JRF's proposal design (their worked example limits the reduction itself to 15% of the standard allowance). Zero - the value under current law, which has no such floor - leaves reductions unlimited. Setting 0.85 models JRF's proposal; this reform-lever parameter encodes no current-law value other than zero. Where the current-law split already fits inside the allowance nothing changes; where it does not, deductions are met first, up to the allowance, and the benefit cap reduction absorbs the rest (uc_benefit_cap_reduction). JRF fixes the combined limit, not the priority between the two, so this ordering is a modeling choice; it reproduces JRF's September 2026 example, where a 15% deduction survives and the cap reduction goes. Where deductions do exceed it, the modeled floor binds on all of them, including the above-cap excess that current law exempts from the deductions cap (last resort and child maintenance deductions) - JRF's briefing does not state whether their floor exempts those categories, and its example involves only cappable deductions and the benefit cap, so treating the floor as binding on everything is a modeling choice rather than a stated feature of the proposal.
 values:
   2015-04-01: 0
 metadata:
   label: UC protected minimum floor
   unit: /1
   period: year
   reference:
-    - title: JRF, A protected minimum floor in Universal Credit (October 2025 briefing; proposal design source, not current law)
-      href: https://www.jrf.org.uk/social-security/protected-minimum-floor-in-universal-credit-new-policy-targeting-hardship
+    - title: JRF, A protected minimum floor in Universal Credit to cut deep child poverty (11 September 2026, replacing the 9 October 2025 briefing; proposal design source, not current law)
+      href: https://www.jrf.org.uk/social-security/a-protected-minimum-floor-in-universal-credit-to-cut-deep-child-poverty

policyengine_uk/tests/policy/baseline/finance/benefit/family/universal_credit/uc_deductions.yaml

@@ -107,7 +107,8 @@
       household:
         members: person
   output:
-    # Schedule 6 of SI 2013/380: the award cannot be deducted below one
+    # Schedule 6, paragraph 3(1)(a) of SI 2013/380: the award cannot be
+    # deducted below one
     # penny per assessment period (12p per year).
     uc_deductions: 499.88
     universal_credit: 0.12