Count statutory sick, maternity and paternity pay as Universal Credit earned income

changelog.d/2337.fixed.md

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+- Counted statutory sick, maternity and paternity pay as Universal Credit earned income (UC Regs 2013 reg. 55(4)). Universal Credit already deducted the National Insurance on all three, and the income tax on sick and maternity pay, so it rose as the payments rose. Statutory paternity pay is now also counted in household benefits, HBAI income and government spending, as sick and maternity pay already were.

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

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+# Universal Credit treats statutory sick, maternity and paternity pay as
+# employed earnings (UC Regs 2013 reg. 55(4)(a) to (c)). Reg. 55(5) takes
+# relievable pension contributions, income tax and primary Class 1 National
+# Insurance off "the amount of general earnings or benefits specified in
+# paragraphs (2) to (4)", so the tax on the payments comes off with the rest.
+# Reg. 55(4)(e) to (h) list statutory adoption, shared parental, parental
+# bereavement and neonatal care pay too; the model has no variables for them.
+#
+# Before this was fixed the payments were left out of earned income while the
+# National Insurance on them, and the income tax on sick and maternity pay,
+# were still deducted (the model charges no income tax on paternity pay). Each
+# pound of sick or maternity pay above the thresholds then raised the award by
+# 0.55 x (20% + 8%) = 15.4p; each pound of paternity pay by 0.55 x 8% = 4.4p.
+#
+# Hand calculations use the 2026-27 rates:
+# - personal allowance 12,570; basic rate 20%;
+# - primary Class 1 NI 8% above the primary threshold of 241.73 a week
+#   (12,569.96 a year);
+# - UC standard allowance 424.90 a month (single, 25 or over) or 666.97
+#   (couple, one 25 or over); child element 303.94 a month; work allowance
+#   427 a month with housing costs; taper 55%.
+
+- name: Statutory sick pay counts as earnings, and the tax on it comes off with the rest
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 30
+        employment_income: 20_000
+        statutory_sick_pay: 2_000
+      child:
+        age: 5
+    benunits:
+      benunit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        tenure_type: RENT_FROM_COUNCIL
+        rent: 9_600
+  output:
+    # (20,000 + 2,000 - 12,570) x 20%.
+    income_tax: [1_886, 0]
+    uc_income_tax_on_earnings: [1_886, 0]
+    # (22,000 - 12,569.96) x 8%.
+    uc_national_insurance_on_earnings: [754.40, 0]
+    # 22,000 - 1,886 - 754.40. Before this fix: 20,000 - 1,886 - 754.40
+    # = 17,359.60.
+    uc_individual_earned_income: [19_359.60, 0]
+    # Less the work allowance of 427 x 12 = 5,124.
+    uc_earned_income: 14_235.60
+    # 424.90 x 12 + 303.94 x 12 + 9,600 = 5,098.80 + 3,647.28 + 9,600.
+    uc_maximum_amount: 18_346.08
+    # 18,346.08 - 0.55 x 14,235.60. Before this fix: 11,616.50, which is
+    # 308 more than the 11,308.50 the same parent gets with no sick pay.
+    universal_credit: 10_516.50
+
+- name: Statutory maternity pay counts as earnings in the same way
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 30
+        employment_income: 20_000
+        statutory_maternity_pay: 2_000
+      child:
+        age: 5
+    benunits:
+      benunit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        tenure_type: RENT_FROM_COUNCIL
+        rent: 9_600
+  output:
+    income_tax: [1_886, 0]
+    uc_income_tax_on_earnings: [1_886, 0]
+    uc_national_insurance_on_earnings: [754.40, 0]
+    uc_individual_earned_income: [19_359.60, 0]
+    uc_earned_income: 14_235.60
+    universal_credit: 10_516.50
+
+- name: The same total paid as wages gives the same award
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 30
+        employment_income: 22_000
+      child:
+        age: 5
+    benunits:
+      benunit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        tenure_type: RENT_FROM_COUNCIL
+        rent: 9_600
+  output:
+    uc_individual_earned_income: [19_359.60, 0]
+    uc_earned_income: 14_235.60
+    universal_credit: 10_516.50
+
+- name: Statutory sick pay alone is earned income
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 30
+    statutory_sick_pay: 3_000
+  output:
+    # Below the personal allowance and the primary threshold.
+    uc_income_tax_on_earnings: 0
+    uc_national_insurance_on_earnings: 0
+    uc_individual_earned_income: 3_000
+    # No work allowance: no child and no limited capability for work.
+    uc_earned_income: 3_000
+    # 424.90 x 12.
+    uc_maximum_amount: 5_098.80
+    # 5,098.80 - 0.55 x 3,000. Before this fix the full 5,098.80.
+    universal_credit: 3_448.80
+
+- name: Joint claimants' statutory paternity and maternity pay are combined earned income
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      father:
+        age: 30
+        employment_income: 9_000
+        statutory_paternity_pay: 400
+      mother:
+        age: 30
+        statutory_maternity_pay: 6_000
+      child:
+        age: 1
+    benunits:
+      benunit:
+        members: [father, mother, child]
+    households:
+      household:
+        members: [father, mother, child]
+        tenure_type: RENT_FROM_COUNCIL
+        rent: 9_600
+  output:
+    # Each is below the personal allowance and the primary threshold, so
+    # nothing is deducted: 9,000 + 400 and 6,000.
+    uc_income_tax_on_earnings: [0, 0, 0]
+    uc_national_insurance_on_earnings: [0, 0, 0]
+    uc_individual_earned_income: [9_400, 6_000, 0]
+    # 15,400 less the work allowance of 5,124.
+    uc_earned_income: 10_276
+    # 666.97 x 12 + 303.94 x 12 + 9,600 = 8,003.64 + 3,647.28 + 9,600.
+    uc_maximum_amount: 21_250.92
+    # 21,250.92 - 0.55 x 10,276. Before this fix only the 9,000 of wages
+    # counted: 21,250.92 - 0.55 x 3,876 = 19,119.12.
+    universal_credit: 15_599.12
+
+- name: National Insurance on statutory paternity pay comes off the earnings that include it
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 30
+    employment_income: 12_000
+    statutory_paternity_pay: 400
+  output:
+    # (12,400 - 12,569.96) is negative, so no National Insurance, and wages
+    # of 12,000 are below the personal allowance.
+    uc_national_insurance_on_earnings: 0
+    uc_income_tax_on_earnings: 0
+    uc_individual_earned_income: 12_400
+    # 5,098.80 - 0.55 x 12,400 is negative.
+    universal_credit: 0
+
+- name: A qualifying young person's statutory sick pay is not the claimant's earned income
+  # Reg. 22(1)(b) deducts "the claimant's earned income (or, in the case of
+  # joint claimants, their combined earned income)".
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 40
+        is_parent: true
+      young_person:
+        age: 17
+        current_education: UPPER_SECONDARY
+        statutory_sick_pay: 2_000
+    benunits:
+      benunit:
+        members: [parent, young_person]
+    households:
+      household:
+        members: [parent, young_person]
+  output:
+    uc_individual_earned_income_before_mif: [0, 2_000]
+    uc_earned_income: 0
+    # 424.90 x 12 + 351.88 x 12, the higher child element for a first child
+    # born before 6 April 2017. The sick pay takes nothing off it.
+    universal_credit: 9_321.36
+
+- name: National Insurance on statutory paternity pay above the threshold comes off earned income
+  # Employee pension contributions of 8,000 under a net pay arrangement take
+  # taxable income below the personal allowance, so no income tax is due
+  # whether or not paternity pay is taxed; National Insurance is charged on
+  # pay before pension contributions.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 30
+    employment_income: 20_000
+    employee_pension_contributions: 8_000
+    statutory_paternity_pay: 400
+  output:
+    uc_income_tax_on_earnings: 0
+    # (20,000 + 400 - 12,569.96) x 8%.
+    uc_national_insurance_on_earnings: 626.40
+    # 20,400 - 8,000 relievable pension contributions - 626.40 (reg. 55(5)).
+    uc_individual_earned_income: 11_773.60
+
+- name: Statutory paternity pay is household income, so it never lowers net income through Universal Credit
+  # Statutory sick and maternity pay were already in household benefits,
+  # HBAI income and government spending; paternity pay was in none of them.
+  # Once Universal Credit tapers it, leaving it out would make net income
+  # fall by 0.55 x 400 = 220 as the pay rose.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 30
+        statutory_paternity_pay: 400
+    benunits:
+      benunit:
+        members: [parent]
+    households:
+      household:
+        members: [parent]
+        council_tax: 0
+        tv_licence: 0
+        expected_sdlt: 0
+  output:
+    # 424.90 x 12 - 0.55 x 400, with no work allowance.
+    universal_credit: 4_878.80
+    # The award plus the pay. Without the pay the household has 5,098.80, so
+    # 400 of pay raises its income by 180.
+    household_benefits: 5_278.80
+    household_net_income: 5_278.80
+    hbai_household_net_income: 5_278.80
+    gov_spending: 5_278.80