Use each rule's own Universal Credit earned income in the benefit cap, targeted childcare and local CTR

changelog.d/uc-earned-income-consumers-1986.fixed.md

@@ -0,0 +1 @@
+Use Universal Credit earned income as each rule defines it (#1986): the benefit cap earnings exception now applies only to an award of Universal Credit (not to Housing Benefit) and sums each person's earnings net of their own tax, National Insurance and relievable pension contributions, without the minimum income floor, against 16 hours a week at the national living wage in whole pounds a month (UC Regs 2013 regs 82 and 6(1A)(za); £881 a month from April 2026) instead of a hard-coded £10,152 a year; the targeted childcare Universal Credit route and the Kingston upon Thames, Merton, Newham and Westminster council tax reduction schemes now count earned income before the work allowance.

changelog.d/uc-earned-income-own-tax.fixed.md

@@ -0,0 +1 @@
+Deduct from each person's Universal Credit earnings only their own income tax and National Insurance on that employment or self-employment (UC Regs 2013 reg. 55(5)(b), reg. 57(2) step 3), not the whole benefit unit's tax on all income, so tax on pensions, State Pension, property, savings and dividends, the High Income Child Benefit Charge and voluntary Class 3 contributions no longer reduce earned income.

docs/book/programs/gov/dfe/targeted-childcare-entitlement.ipynb

@@ -28,7 +28,7 @@
     "\n",
     "#### Eligibility conditions\n",
     "Families may also qualify based on income thresholds if they receive:\n",
-    "* **Universal Credit** with household earned income of **£15,400 or less** per year\n",
+    "* **Universal Credit** with earned income of **£15,400 or less** per year (combined for a couple), as Universal Credit calculates it: earnings after the person's own tax, National Insurance and pension contributions, and before the work allowance (`uc_earned_income_before_work_allowance`)\n",
     "* **Tax Credits** (Working Tax Credit or Child Tax Credit) with household income of **£16,190 or less** per year\n",
     "\n",
     "#### Geographic scope\n",

docs/book/programs/gov/dwp/universal-credit.ipynb

@@ -44,7 +44,12 @@
   {
    "cell_type": "markdown",
    "metadata": {},
-   "source": "## How PolicyEngine computes Universal Credit\n\nPolicyEngine computes Universal Credit at the benefit-unit level in three stages:\n\n1. **Maximum entitlement** (`uc_maximum_amount`): sum the elements the benunit qualifies for — `uc_standard_allowance`, `uc_child_element`, `uc_disability_elements`, `uc_carer_element`, `uc_housing_costs_element`, and `uc_childcare_element`.\n2. **Means test**: the maximum entitlement is reduced by the benunit's countable earnings above its work allowance (`uc_work_allowance`) at the published taper rate (the `gov.dwp.universal_credit.means_test.reduction_rate` parameter, currently 55%), plus all of its unearned income (`uc_unearned_income`), pound for pound. Unearned income is the list in `gov.dwp.universal_credit.means_test.income_definitions.unearned`: retirement pension income (State Pension and private pensions, UC Regulations 2013 regs 66(1)(a) and 67), Carer's Allowance, carer support payment (up to the Carer's Allowance rate, from November 2023), contribution-based JSA and ESA, maternity allowance, industrial injuries benefit, and the tariff income deemed from capital (reg 72). Actual savings interest, dividends and ordinary rental income are excluded from UC unearned income at every capital level; capital counts through its tariff income instead. Asset rules apply on top of this — capital above the lower threshold deems a tariff income, and capital above the upper threshold disqualifies the benunit entirely.\n3. **Benefit cap**: the post-means-test award (`universal_credit_pre_benefit_cap`) is finally reduced by `benefit_cap_reduction` to produce `universal_credit`. The benefit cap only applies to benunits without a benefit-cap exemption (working enough hours, having a qualifying disability benefit, etc.).\n\nThe take-up step is handled by the input variable `would_claim_uc`, which is populated stochastically when the dataset is built so that PolicyEngine's caseload aggregates match published DWP claimant numbers rather than the full eligible population.\n\nParameters live in `policyengine_uk/parameters/gov/dwp/universal_credit/` and the per-element formulas in `policyengine_uk/variables/gov/dwp/universal_credit/`."
+   "source": "## How PolicyEngine computes Universal Credit\n\nPolicyEngine computes Universal Credit at the benefit-unit level in three stages:\n\n1. **Maximum entitlement** (`uc_maximum_amount`): sum the elements the benunit qualifies for — `uc_standard_allowance`, `uc_child_element`, `uc_disability_elements`, `uc_carer_element`, `uc_housing_costs_element`, and `uc_childcare_element`.\n2. **Means test**: each person's earnings (`uc_individual_earned_income`) are net of their own relievable pension contributions and the income tax and National Insurance they pay on that employment or self-employment (UC Regulations 2013 regs 55(5) and 57(2)): `uc_income_tax_on_earnings` treats earnings as the lowest slice of the person's non-savings income, so tax on pensions, property, savings and dividends is never deducted, and one partner's tax never reduces the other's earnings. The maximum entitlement is then reduced by 55% (the `gov.dwp.universal_credit.means_test.reduction_rate` parameter) of the benunit's combined earnings above its work allowance (`uc_work_allowance`), and by all of its unearned income (`uc_unearned_income`), pound for pound. Unearned income is the list in `gov.dwp.universal_credit.means_test.income_definitions.unearned`: retirement pension income (State Pension and private pensions, UC Regulations 2013 regs 66(1)(a) and 67), Carer's Allowance, carer support payment (up to the Carer's Allowance rate, from November 2023), contribution-based JSA and ESA, maternity allowance, industrial injuries benefit, and the tariff income deemed from capital (reg 72). Actual savings interest, dividends and ordinary rental income are excluded from UC unearned income at every capital level; capital counts through its tariff income instead. Asset rules apply on top of this — capital above the lower threshold deems a tariff income, and capital above the upper threshold disqualifies the benunit entirely.\n3. **Benefit cap**: the post-means-test award (`universal_credit_pre_benefit_cap`) is finally reduced by `benefit_cap_reduction` to produce `universal_credit`. The benefit cap only applies to benunits without a benefit-cap exemption (working enough hours, having a qualifying disability benefit, etc.).\n\nThe take-up step is handled by the input variable `would_claim_uc`, which is populated stochastically when the dataset is built so that PolicyEngine's caseload aggregates match published DWP claimant numbers rather than the full eligible population.\n\nParameters live in `policyengine_uk/parameters/gov/dwp/universal_credit/` and the per-element formulas in `policyengine_uk/variables/gov/dwp/universal_credit/`."
+  },
+  {
+   "cell_type": "markdown",
+   "metadata": {},
+   "source": "### Benefit cap earnings exception\n\nThe cap does not apply where the claimant's earned income, or a couple's combined earned income, reaches 16 hours a week at the national living wage, converted to a monthly amount by multiplying by 52 and dividing by 12, with any fraction of a pound disregarded (UC Regulations 2013 regs 82(1)(a) and 6(1A)(za)): £846 a month in 2025-26 and £881 in 2026-27 (`benefit_cap_earnings_threshold`, twelve times the monthly amount). Before 1 April 2017 it was £430 a month. Earned income here (`benefit_cap_earned_income`) is each person's earnings net of their own income tax, National Insurance and pension contributions, and leaves out income treated as earned under the minimum income floor (reg 82(4)). The nine-month grace period is not modelled."
   },
   {
    "cell_type": "code",

policyengine_uk/parameters/gov/dwp/universal_credit/benefit_cap/README.md

@@ -0,0 +1 @@
+# Benefit cap

policyengine_uk/parameters/gov/dwp/universal_credit/benefit_cap/earnings_exception/README.md

@@ -0,0 +1 @@
+# Earnings exception

policyengine_uk/parameters/gov/dwp/universal_credit/benefit_cap/earnings_exception/monthly_amount.yaml

@@ -0,0 +1,13 @@
+description: Fixed monthly earned income at or above which a Universal Credit award is excepted from the benefit cap. The regulations set a sum of money until 1 April 2017 and a number of hours at the national living wage rate since, so this is zero from that date.
+values:
+  2013-04-29: 430
+  2017-04-01: 0
+metadata:
+  unit: currency-GBP
+  period: month
+  label: Universal Credit benefit cap earnings exception fixed monthly amount
+  reference:
+    - title: The Universal Credit Regulations 2013 reg. 82(1)(a), as made
+      href: https://www.legislation.gov.uk/uksi/2013/376/regulation/82/made
+    - title: The Universal Credit (Benefit Cap Earnings Exception) Amendment Regulations 2017 reg. 2(3)(a)
+      href: https://www.legislation.gov.uk/uksi/2017/138/regulation/2/made

policyengine_uk/parameters/gov/dwp/universal_credit/benefit_cap/earnings_exception/weekly_hours.yaml

@@ -0,0 +1,13 @@
+description: Hours a week at the national living wage rate whose pay, converted to a monthly amount, is the earned income at or above which a Universal Credit award is excepted from the benefit cap. Zero before 1 April 2017, when the regulations set a fixed sum instead.
+values:
+  2013-04-29: 0
+  2017-04-01: 16
+metadata:
+  unit: hour
+  period: week
+  label: Universal Credit benefit cap earnings exception weekly hours at the national living wage
+  reference:
+    - title: The Universal Credit Regulations 2013 reg. 82(1)(a)
+      href: https://www.legislation.gov.uk/uksi/2013/376/regulation/82
+    - title: The Universal Credit (Benefit Cap Earnings Exception) Amendment Regulations 2017 reg. 2(3)(a)
+      href: https://www.legislation.gov.uk/uksi/2017/138/regulation/2/made

policyengine_uk/tests/policy/baseline/finance/benefit/family/universal_credit/income/uc_earned_income.yaml

@@ -5,10 +5,11 @@
     employment_income: 1_000
     miscellaneous_income: 100
     uc_work_allowance: 10
-    # The claimant's own tax (UC reg 22 counts the claimant's earnings).
-    tax: 1
+    # The claimant's own tax on these earnings.
+    uc_income_tax_on_earnings: 1
   output:
-    uc_earned_income: 1100 - 11
+    uc_individual_earned_income: 1_100 - 1
+    uc_earned_income: 1_100 - 11
 
 - name: Capped at 0
   period: 2025
@@ -17,7 +18,46 @@
     employment_income: 1_000
     miscellaneous_income: 100
     uc_work_allowance: 2_000
-    # The claimant's own tax (UC reg 22 counts the claimant's earnings).
-    tax: 1
+    # The claimant's own tax on these earnings.
+    uc_income_tax_on_earnings: 1
   output:
     uc_earned_income: 0
+
+- name: Each person's deductions come off only their own earnings
+  period: 2025
+  absolute_error_margin: 0
+  input:
+    people:
+      earner:
+        employment_income: 1_000
+        uc_income_tax_on_earnings: 100
+        uc_national_insurance_on_earnings: 10
+      partner:
+        uc_income_tax_on_earnings: 500
+        pension_contributions: 50
+    benunits:
+      benunit:
+        members: [earner, partner]
+        uc_work_allowance: 0
+  output:
+    uc_individual_earned_income: [890, 0]
+    uc_earned_income: 890
+
+- name: Work allowance comes off combined earnings after each person's deductions
+  period: 2025
+  absolute_error_margin: 0
+  input:
+    people:
+      earner:
+        employment_income: 1_000
+        uc_income_tax_on_earnings: 100
+      partner:
+        employment_income: 500
+        pension_contributions: 50
+    benunits:
+      benunit:
+        members: [earner, partner]
+        uc_work_allowance: 300
+  output:
+    uc_individual_earned_income: [900, 450]
+    uc_earned_income: 1_050