Cap the eligible rent at the LHA before the Housing Benefit taper

changelog.d/hb-lha-cap-before-taper.fixed.md

@@ -0,0 +1 @@
+Apply the Local Housing Allowance cap to the eligible rent before the Housing Benefit taper and non-dependant deductions, as SI 2006/213 regs 12D(2)(a), 70 and 71 (SI 2006/214 regs 12D, 50 and 51 at pension age) require, rather than capping the tapered rent.

docs/book/programs/gov/dwp/housing-benefit.ipynb

@@ -38,9 +38,9 @@
     "\n",
     "The award is computed in four stages:\n",
     "\n",
-    "1. **Eligible rent** (`benunit_rent`): the contracted rent for the property, capped at the Local Housing Allowance rate where the LHA applies.\n",
+    "1. **Eligible rent**: the rent the benunit is liable for (`benunit_rent`). Where the Local Housing Allowance applies (`LHA_eligible`: renting, and no member in social housing), the eligible rent is the maximum rent (LHA), which is the LHA rate or, where the rent is lower, the rent (`LHA_cap`; SI 2006/213 regs [12D(2)(a)](https://www.legislation.gov.uk/uksi/2006/213/regulation/12D) and [13D(5)](https://www.legislation.gov.uk/uksi/2006/213/regulation/13D)).\n",
     "2. **Applicable amount** (`housing_benefit_applicable_amount`): a personal allowance derived from the benunit's composition (single, couple, lone parent) and age, plus any disability/carer premiums. This is the \"minimum income\" the household needs before HB tapers begin.\n",
-    "3. **Means test** (`housing_benefit_entitlement`): the benunit's `housing_benefit_applicable_income` in excess of the applicable amount is tapered against the eligible rent at the published `withdrawal_rate` (currently 0.65). The result is then reduced by `housing_benefit_non_dep_deductions` for any non-dependant adults living in the household.\n",
+    "3. **Means test** (`housing_benefit_entitlement`): the appropriate maximum Housing Benefit is the eligible rent less `housing_benefit_non_dep_deductions` for any non-dependant adults living in the household ([reg. 70](https://www.legislation.gov.uk/uksi/2006/213/regulation/70)). The published `withdrawal_rate` (currently 0.65) of the benunit's `housing_benefit_applicable_income` in excess of the applicable amount is deducted from that maximum ([SSCBA 1992 s. 130(3)(b)](https://www.legislation.gov.uk/ukpga/1992/4/section/130), [reg. 71](https://www.legislation.gov.uk/uksi/2006/213/regulation/71)). Because the LHA caps the eligible rent, the taper comes off the LHA: a private tenant with rent above the LHA and income above the applicable amount receives the LHA less the taper, not the lower of the LHA and the rent less the taper. The pension-age regulations (SI 2006/214) have the same rules at regs 12D, 13D, 50 and 51, and the Northern Ireland regulations at SR 2006/405 regs 13C, 14D, 68 and 69 and SR 2006/406 regs 13C, 14D, 48 and 49.\n",
     "4. **Benefit cap** (`housing_benefit`): the post-means-test award is finally reduced by `benefit_cap_reduction` if the household's total benefit income exceeds the cap and no cap exemption applies.\n",
     "\n",
     "The take-up gate (`would_claim_housing_benefit`) is applied inside `housing_benefit_pre_benefit_cap`."

policyengine_uk/tests/policy/baseline/finance/benefit/family/housing_benefit/entitlement/housing_benefit_entitlement.yaml

@@ -20,7 +20,11 @@
     LHA_cap: 1_000
     housing_benefit_non_dep_deductions: 0
   output:
-    housing_benefit_entitlement: 1_000
+    # The eligible rent is the LHA cap of 1,000 (SI 2006/213 reg 12D(2)(a)),
+    # and the taper of 0.65 * (11,000 - 1,000) = 6,500 is deducted from it
+    # (reg 71): max(0, 1,000 - 6,500) = 0. Capping after the taper gave
+    # min(8,000 - 6,500, 1,000) = 1,000.
+    housing_benefit_entitlement: 0
 
 - name: Capped at 0
   period: 2025

policyengine_uk/tests/policy/baseline/finance/benefit/family/housing_benefit/entitlement/housing_benefit_lha_order.yaml

@@ -0,0 +1,186 @@
+# The Local Housing Allowance caps the eligible rent before the taper.
+# Where a maximum rent (LHA) applies, it is the eligible rent (SI 2006/213 and
+# SI 2006/214 reg 12D(2)(a)), and it is the rent where the rent is below the
+# LHA (reg 13D(5)). The appropriate maximum Housing Benefit is the eligible rent
+# less non-dependant deductions (reg 70; SPC reg 50), and 65% of the excess of
+# income over the applicable amount is deducted from it (SSCBA 1992
+# s.130(3)(b); reg 71; SPC reg 51). So:
+#   HB = max(0, min(rent, LHA) - non-dependant deductions - taper)
+# The code before this fix capped after the taper:
+#   max(0, min(max(0, rent - taper), LHA) - non-dependant deductions)
+#
+# Applicable income and amount are inputs, so the taper is exact and does not
+# depend on the earnings disregard or the Guarantee Credit passport.
+# LHA_cap is min(rent, LHA rate), as LHA_cap.py computes it.
+
+- name: Rent above the LHA is tapered from the LHA, not from the rent
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    benunit_rent: 30_000
+    LHA_eligible: true
+    LHA_cap: 9_467.64
+    housing_benefit_applicable_amount: 13_312
+    housing_benefit_applicable_income: 14_948.80
+    housing_benefit_non_dep_deductions: 0
+  output:
+    # taper = 0.65 * (14,948.80 - 13,312) = 0.65 * 1,636.80 = 1,063.92
+    # HB = 9,467.64 - 1,063.92 = 8,403.72
+    # (the old order gave min(30,000 - 1,063.92, 9,467.64) = 9,467.64)
+    housing_benefit_entitlement: 8_403.72
+
+- name: Single pensioner private renter with rent above the LHA
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 70
+        state_pension_reported: 16_000
+    benunits:
+      benunit:
+        members: [person]
+        # The model's 2026 rate for this household (default BRMA, Maidstone,
+        # one-bedroom category) is also 9,467.64; it is an input here so the
+        # test pins the order of the cap and the taper, not the LHA table.
+        BRMA_LHA_rate: 9_467.64
+        # Inputs, so the earnings disregard and the pension-age allowance
+        # cannot move the taper. The applicable income input overrides the
+        # income computed from state_pension_reported, which only keeps
+        # guarantee_credit at 0 below.
+        housing_benefit_applicable_amount: 13_312
+        housing_benefit_applicable_income: 14_948.80
+    households:
+      household:
+        members: [person]
+        rent: 30_000
+        tenure_type: RENT_PRIVATELY
+  output:
+    # State Pension of 16,000 is above the Guarantee Credit minimum guarantee,
+    # so no Guarantee Credit passport applies.
+    guarantee_credit: 0
+    LHA_eligible: true
+    # LHA_cap = min(30,000, 9,467.64) = 9,467.64
+    LHA_cap: 9_467.64
+    housing_benefit_non_dep_deductions: 0
+    # 9,467.64 - 0.65 * (14,948.80 - 13,312) = 9,467.64 - 1,063.92 = 8,403.72
+    housing_benefit_eligible: true
+    housing_benefit: 8_403.72
+
+- name: Rent below the LHA is the eligible rent
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    benunit_rent: 8_000
+    LHA_eligible: true
+    # min(8,000, 9,467.64) = 8,000
+    LHA_cap: 8_000
+    housing_benefit_applicable_amount: 13_312
+    housing_benefit_applicable_income: 14_948.80
+    housing_benefit_non_dep_deductions: 0
+  output:
+    # 8,000 - 1,063.92 = 6,936.08, as under the old order
+    housing_benefit_entitlement: 6_936.08
+
+- name: Taper larger than the excess of the rent over the LHA
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    benunit_rent: 12_000
+    LHA_eligible: true
+    LHA_cap: 9_467.64
+    housing_benefit_applicable_amount: 13_312
+    housing_benefit_applicable_income: 21_312
+    housing_benefit_non_dep_deductions: 0
+  output:
+    # taper = 0.65 * (21,312 - 13,312) = 0.65 * 8,000 = 5,200
+    # HB = 9,467.64 - 5,200 = 4,267.64
+    # (the old order gave min(12,000 - 5,200, 9,467.64) = 6,800, which is
+    # 2,532.36 = rent - LHA more)
+    housing_benefit_entitlement: 4_267.64
+
+- name: Taper larger than the LHA leaves no Housing Benefit
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    benunit_rent: 30_000
+    LHA_eligible: true
+    LHA_cap: 9_467.64
+    housing_benefit_applicable_amount: 13_312
+    housing_benefit_applicable_income: 33_312
+    housing_benefit_non_dep_deductions: 0
+  output:
+    # taper = 0.65 * (33,312 - 13,312) = 0.65 * 20,000 = 13,000 > 9,467.64
+    # HB = max(0, 9,467.64 - 13,000) = 0
+    # (the old order gave min(30,000 - 13,000, 9,467.64) = 9,467.64)
+    housing_benefit_entitlement: 0
+
+- name: Income below the applicable amount gets the LHA in full
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    benunit_rent: 30_000
+    LHA_eligible: true
+    LHA_cap: 9_467.64
+    housing_benefit_applicable_amount: 13_312
+    housing_benefit_applicable_income: 10_000
+    housing_benefit_non_dep_deductions: 0
+  output:
+    # taper = 0.65 * max(0, 10,000 - 13,312) = 0; HB = 9,467.64
+    housing_benefit_entitlement: 9_467.64
+
+- name: LHA couple with a non-dependant (rulespec-uk pipeline case 4)
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    benunit_rent: 9_000
+    LHA_eligible: true
+    # min(9,000, LHA 8,000) = 8,000
+    LHA_cap: 8_000
+    housing_benefit_applicable_amount: 7_807.80
+    housing_benefit_applicable_income: 12_000
+    housing_benefit_non_dep_deductions: 3_346.20
+  output:
+    # taper = 0.65 * (12,000 - 7,807.80) = 0.65 * 4,192.20 = 2,724.93
+    # HB = 8,000 - 3,346.20 - 2,724.93 = 1,928.87
+    # (the old order gave min(9,000 - 2,724.93, 8,000) - 3,346.20
+    #  = 6,275.07 - 3,346.20 = 2,928.87)
+    housing_benefit_entitlement: 1_928.87
+
+- name: Council tenant with the same rent and taper is not capped
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 70
+    benunits:
+      benunit:
+        members: [person]
+        housing_benefit_applicable_amount: 7_807.80
+        housing_benefit_applicable_income: 12_000
+        housing_benefit_non_dep_deductions: 3_346.20
+    households:
+      household:
+        members: [person]
+        rent: 9_000
+        tenure_type: RENT_FROM_COUNCIL
+  output:
+    LHA_eligible: false
+    # eligible rent = rent = 9,000
+    # HB = 9,000 - 3,346.20 - 2,724.93 = 2,928.87, as under the old order
+    housing_benefit_entitlement: 2_928.87
+
+- name: Non-dependant deductions above the LHA leave no Housing Benefit
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    benunit_rent: 9_000
+    LHA_eligible: true
+    LHA_cap: 8_000
+    housing_benefit_applicable_amount: 13_312
+    housing_benefit_applicable_income: 10_000
+    housing_benefit_non_dep_deductions: 8_500
+  output:
+    # no taper; HB = max(0, 8,000 - 8,500) = 0
+    housing_benefit_entitlement: 0