Refine UC rebalancing protection modeling

Author: MaxGhenis

changelog.d/uc-rebalancing-protection.fixed.md

@@ -1 +1 @@
-Corrected Universal Credit rebalancing so existing health-element claimants keep their combined award CPI-protected and single claimants under 25 receive the matching standard allowance top-up.
+Corrected Universal Credit rebalancing so existing health-element claimants keep their combined standard allowance and health element award CPI-protected.

docs/book/policy/model-baseline.md

@@ -12,7 +12,7 @@ The government increased the [employer National Insurance rate from 13.8% to 15%
 
 ### Universal Credit rebalancing
 
-Parliament passed legislation to implement Universal Credit rebalancing reforms, with the [rebalancing switch activated in fiscal year 2025-26](https://github.com/PolicyEngine/policyengine-uk/blob/master/policyengine_uk/parameters/gov/dwp/universal_credit/rebalancing/active.yaml#L3). The reforms include [graduated standard allowance uplifts](https://github.com/PolicyEngine/policyengine-uk/blob/master/policyengine_uk/parameters/gov/dwp/universal_credit/rebalancing/standard_allowance_uplift.yaml) above inflation: 2.3% in 2026-27, 3.1% in 2027-28, 4.0% in 2028-29, and 4.8% in 2029-30. A [new health element of £217.26](https://github.com/PolicyEngine/policyengine-uk/blob/master/policyengine_uk/parameters/gov/dwp/universal_credit/rebalancing/new_claimant_health_element.yaml#L3) applies to most new claimants in fiscal year 2026-27, while existing health-element claimants keep the combined value of their standard allowance and health element at least in line with CPI. Single claimants under 25 receive an additional standard allowance top-up to preserve that protection.
+Parliament passed legislation to implement Universal Credit rebalancing reforms, with the [rebalancing switch activated in fiscal year 2025-26](https://github.com/PolicyEngine/policyengine-uk/blob/master/policyengine_uk/parameters/gov/dwp/universal_credit/rebalancing/active.yaml#L3). The reforms include [graduated standard allowance uplifts](https://github.com/PolicyEngine/policyengine-uk/blob/master/policyengine_uk/parameters/gov/dwp/universal_credit/rebalancing/standard_allowance_uplift.yaml) above inflation: 2.3% in 2026-27, 3.1% in 2027-28, 4.0% in 2028-29, and 4.8% in 2029-30. A [new health element of £217.26](https://github.com/PolicyEngine/policyengine-uk/blob/master/policyengine_uk/parameters/gov/dwp/universal_credit/rebalancing/new_claimant_health_element.yaml#L3) applies to most new claimants in fiscal year 2026-27, while existing health-element claimants keep the combined value of their standard allowance and health element at least in line with CPI.
 
 ### Benefit uprating
 

docs/book/policy/uc-rebalancing.md

@@ -14,18 +14,18 @@ The reforms combine a higher standard allowance, protected awards for existing h
 
 2. **Health element changes for new claimants**: New Universal Credit claimants from April 2026 onwards receive a fixed monthly health element amount of £217.26, rather than the protected existing-claimant amount.
 
-3. **Standard allowance uplifts**: The standard allowance receives additional uplifts beyond the annual inflationary increase from 2026-2029. Single claimants under 25 receive a further top-up so their protected combined award also keeps pace with inflation.
+3. **Standard allowance uplifts**: The standard allowance receives additional uplifts beyond the annual inflationary increase from 2026-2029.
 
 ## Health element changes
 
 From April 2026, new Universal Credit claimants who qualify for the Limited Capability for Work-Related Activity (LCWRA) element receive a fixed monthly amount of £217.26.
 
 Existing recipients are treated differently. Their LCWRA amount is uprated so that the combined value of:
 
-- the single-over-25 standard allowance, and
-- the health element
+- their standard allowance, and
+- their health element
 
-rises at least in line with CPI inflation. Because that flat protected health element is calibrated against the single-over-25 rate, single claimants under 25 receive an additional standard allowance top-up to preserve the same real-terms protection.
+rises at least in line with CPI inflation. The model implements that protection through the health element itself, preserving the combined award outcome without separately modelling the small administrative split between protected LCWRA amounts and any under-25 standard allowance supplement.
 
 The implementation uses transition probabilities based on WPI Economics analysis for the Trussell Trust, derived from administrative Personal Independence Payment data. The probability of being a new claimant varies by year:
 
@@ -52,7 +52,7 @@ The reforms are implemented through parameters, scenario modifiers, and scenario
 ```
 
 - **Parameters**: Three YAML files define the reform's activation status, health element amount for new claimants, and standard allowance uplift rates.
-- **Scenario modifier**: The `add_universal_credit_reform` function applies the protected existing-claimant health-element path and the single-under-25 top-up during microsimulation.
+- **Scenario modifier**: The `add_universal_credit_reform` function applies the protected existing-claimant health-element path during microsimulation.
 - **Scenario**: The `universal_credit_july_2025_reform` scenario enables the reforms in policy analysis.
 
 ## Examples

docs/book/usage/scenarios.md

@@ -436,7 +436,7 @@ def modify_uc_for_new_claimants(sim: Microsimulation):
 
         # General standard allowance uplifts are already handled in the
         # uc_standard_allowance formula. Scenario modifiers only need to add
-        # claimant-specific overrides such as protected top-ups.
+        # claimant-specific overrides such as protected health elements.
 
 # Create the UC rebalancing scenario
 uc_rebalancing = Scenario(simulation_modifier=modify_uc_for_new_claimants)

policyengine_uk/scenarios/uc_reform.py

@@ -9,22 +9,13 @@
 BASELINE_UC_REBALANCING_YEAR = 2025
 
 
-def _cpi_protected_uc_award_monthly(
-    sim: Microsimulation, year: int, claimant_type: str
-) -> float:
+def _benefit_uprating_ratio(sim: Microsimulation, year: int) -> float:
     parameters = sim.tax_benefit_system.parameters
-    baseline = parameters(str(BASELINE_UC_REBALANCING_YEAR))
-    current = parameters(str(year))
-    cpi_factor = float(current.gov.benefit_uprating_cpi) / float(
-        baseline.gov.benefit_uprating_cpi
-    )
-    baseline_standard_allowance = float(
-        baseline.gov.dwp.universal_credit.standard_allowance.amount[claimant_type]
-    )
-    baseline_health_element = float(
-        baseline.gov.dwp.universal_credit.elements.disabled.amount
+    current_index = float(parameters(str(year)).gov.benefit_uprating_cpi)
+    baseline_index = float(
+        parameters(str(BASELINE_UC_REBALANCING_YEAR)).gov.benefit_uprating_cpi
     )
-    return (baseline_standard_allowance + baseline_health_element) * cpi_factor
+    return current_index / baseline_index
 
 
 def _rebalanced_standard_allowance_monthly(
@@ -43,21 +34,28 @@ def _rebalanced_standard_allowance_monthly(
 def _protected_existing_health_element_monthly(
     sim: Microsimulation, year: int
 ) -> float:
-    return _cpi_protected_uc_award_monthly(
+    baseline = sim.tax_benefit_system.parameters(str(BASELINE_UC_REBALANCING_YEAR))
+    protected_combined_award = _benefit_uprating_ratio(sim, year) * (
+        float(baseline.gov.dwp.universal_credit.standard_allowance.amount.SINGLE_OLD)
+        + float(baseline.gov.dwp.universal_credit.elements.disabled.amount)
+    )
+    return protected_combined_award - _rebalanced_standard_allowance_monthly(
         sim, year, "SINGLE_OLD"
-    ) - _rebalanced_standard_allowance_monthly(sim, year, "SINGLE_OLD")
+    )
 
 
-def _single_young_standard_allowance_topup_monthly(
+def _protected_single_young_health_element_monthly(
     sim: Microsimulation, year: int
 ) -> float:
-    protected_young_award = _cpi_protected_uc_award_monthly(sim, year, "SINGLE_YOUNG")
-    standard_allowance = _rebalanced_standard_allowance_monthly(
-        sim, year, "SINGLE_YOUNG"
+    baseline = sim.tax_benefit_system.parameters(str(BASELINE_UC_REBALANCING_YEAR))
+    protected_combined_award = _benefit_uprating_ratio(sim, year) * (
+        float(
+            baseline.gov.dwp.universal_credit.standard_allowance.amount.SINGLE_YOUNG
+        )
+        + float(baseline.gov.dwp.universal_credit.elements.disabled.amount)
     )
-    protected_health_element = _protected_existing_health_element_monthly(sim, year)
-    return max(
-        0.0, protected_young_award - standard_allowance - protected_health_element
+    return protected_combined_award - _rebalanced_standard_allowance_monthly(
+        sim, year, "SINGLE_YOUNG"
     )
 
 
@@ -79,24 +77,19 @@ def add_universal_credit_reform(sim: Microsimulation):
         if not rebalancing.active(year):
             continue
         is_post_2025_claimant = uc_seed < post_2025_claimant_share[year]
-
-        claimant_type = sim.calculate("uc_standard_allowance_claimant_type", year)
-        current_standard_allowance = sim.calculate("uc_standard_allowance", year)
-        single_young_topup = (
-            _single_young_standard_allowance_topup_monthly(sim, year) * 12
-        )
-        current_standard_allowance[
-            claimant_type == UCClaimantType.SINGLE_YOUNG.name
-        ] += single_young_topup
-        sim.set_input("uc_standard_allowance", year, current_standard_allowance)
-
         current_health_element = sim.calculate("uc_LCWRA_element", year)
+        claimant_type = sim.calculate("uc_standard_allowance_claimant_type", year)
         has_health_element = current_health_element > 0
-        protected_health_element = (
-            _protected_existing_health_element_monthly(sim, year) * 12
+        protected_health_element = np.full(
+            current_health_element.shape,
+            _protected_existing_health_element_monthly(sim, year) * 12,
+            dtype=current_health_element.dtype,
         )
+        protected_health_element[
+            claimant_type == UCClaimantType.SINGLE_YOUNG.name
+        ] = _protected_single_young_health_element_monthly(sim, year) * 12
         current_health_element[has_health_element & ~is_post_2025_claimant] = (
-            protected_health_element
+            protected_health_element[has_health_element & ~is_post_2025_claimant]
         )
         # Set post-April 2026 claimants to £217.26/month.
         # https://bills.parliament.uk/publications/62123/documents/6889#page=16

policyengine_uk/tests/test_uc_rebalancing.py

@@ -4,18 +4,16 @@
 import policyengine_uk.scenarios.uc_reform as uc_reform
 from policyengine_uk import Simulation
 
-BASELINE_YEAR = 2025
+YEARS = range(2025, 2030)
 
 
-def _uc_claimant(age: int) -> dict:
+def _uc_claimant(age_2025: int) -> dict:
     return {
         "people": {
             "person": {
-                "age": {year: age for year in range(2025, 2030)},
-                "employment_income": {year: 0 for year in range(2025, 2030)},
-                "uc_limited_capability_for_WRA": {
-                    year: True for year in range(2025, 2030)
-                },
+                "age": {year: age_2025 + year - 2025 for year in YEARS},
+                "employment_income": {year: 0 for year in YEARS},
+                "uc_limited_capability_for_WRA": {year: True for year in YEARS},
             }
         },
         "benunits": {"benunit": {"members": ["person"]}},
@@ -38,66 +36,62 @@ def _force_uc_seed(monkeypatch, values):
     )
 
 
-def _cpi_protected_uc_award_monthly(
-    sim: Simulation, year: int, claimant_type: str
-) -> float:
+def _benefit_uprating_factor(sim: Simulation, year: int) -> float:
     parameters = sim.tax_benefit_system.parameters
-    baseline = parameters(str(BASELINE_YEAR))
-    current = parameters(str(year))
-    cpi_factor = float(current.gov.benefit_uprating_cpi) / float(
-        baseline.gov.benefit_uprating_cpi
-    )
-    baseline_standard_allowance = float(
-        baseline.gov.dwp.universal_credit.standard_allowance.amount[claimant_type]
-    )
-    baseline_health_element = float(
-        baseline.gov.dwp.universal_credit.elements.disabled.amount
-    )
-    return (baseline_standard_allowance + baseline_health_element) * cpi_factor
+    current_index = float(parameters(str(year)).gov.benefit_uprating_cpi)
+    baseline_index = float(parameters("2025").gov.benefit_uprating_cpi)
+    return current_index / baseline_index
 
 
 def _rebalanced_standard_allowance_monthly(
     sim: Simulation, year: int, claimant_type: str
 ) -> float:
     current = sim.tax_benefit_system.parameters(str(year))
-    return float(
+    standard_allowance = float(
         current.gov.dwp.universal_credit.standard_allowance.amount[claimant_type]
-    ) * (
-        1
-        + float(current.gov.dwp.universal_credit.rebalancing.standard_allowance_uplift)
     )
+    uplift = float(
+        current.gov.dwp.universal_credit.rebalancing.standard_allowance_uplift
+    )
+    return standard_allowance * (1 + uplift)
 
 
-def test_existing_single_over_25_claimant_combined_award_tracks_cpi(monkeypatch):
-    _force_uc_seed(monkeypatch, [0.99])
-    sim = Simulation(situation=_uc_claimant(30))
-
-    for year in range(2026, 2030):
-        standard_allowance = sim.calculate("uc_standard_allowance", year)[0] / 12
-        health_element = sim.calculate("uc_LCWRA_element", year)[0] / 12
-        expected_total = _cpi_protected_uc_award_monthly(sim, year, "SINGLE_OLD")
-        expected_health = expected_total - _rebalanced_standard_allowance_monthly(
-            sim, year, "SINGLE_OLD"
-        )
-
-        assert standard_allowance + health_element == pytest.approx(expected_total)
-        assert health_element == pytest.approx(expected_health)
+def _cpi_protected_uc_award_monthly(
+    sim: Simulation, year: int, claimant_type: str
+) -> float:
+    baseline = sim.tax_benefit_system.parameters("2025").gov.dwp.universal_credit
+    baseline_standard_allowance = float(
+        baseline.standard_allowance.amount[claimant_type]
+    )
+    baseline_health_element = float(baseline.elements.disabled.amount)
+    return _benefit_uprating_factor(sim, year) * (
+        baseline_standard_allowance + baseline_health_element
+    )
 
 
-def test_existing_single_under_25_claimant_gets_extra_topup(monkeypatch):
+@pytest.mark.parametrize("age_2025", [20, 30])
+def test_existing_claimants_keep_combined_award_cpi_protected(
+    monkeypatch, age_2025
+):
     _force_uc_seed(monkeypatch, [0.99])
-    sim = Simulation(situation=_uc_claimant(22))
+    sim = Simulation(situation=_uc_claimant(age_2025))
+    claimant_type = "SINGLE_YOUNG" if age_2025 < 25 else "SINGLE_OLD"
 
     for year in range(2026, 2030):
         standard_allowance = sim.calculate("uc_standard_allowance", year)[0] / 12
         health_element = sim.calculate("uc_LCWRA_element", year)[0] / 12
-        expected_total = _cpi_protected_uc_award_monthly(sim, year, "SINGLE_YOUNG")
-        baseline_rebalanced_standard_allowance = _rebalanced_standard_allowance_monthly(
-            sim, year, "SINGLE_YOUNG"
+        new_claimant_health_element = (
+            float(
+                sim.tax_benefit_system.parameters(
+                    str(year)
+                ).gov.dwp.universal_credit.rebalancing.new_claimant_health_element
+            )
         )
 
-        assert standard_allowance + health_element == pytest.approx(expected_total)
-        assert standard_allowance > baseline_rebalanced_standard_allowance
+        assert health_element > new_claimant_health_element
+        assert standard_allowance + health_element == pytest.approx(
+            _cpi_protected_uc_award_monthly(sim, year, claimant_type)
+        )
 
 
 def test_new_claimants_use_fixed_health_element(monkeypatch):
@@ -106,10 +100,30 @@ def test_new_claimants_use_fixed_health_element(monkeypatch):
 
     for year in range(2026, 2030):
         health_element = sim.calculate("uc_LCWRA_element", year)[0] / 12
-        expected_health = float(
-            sim.tax_benefit_system.parameters(
-                str(year)
-            ).gov.dwp.universal_credit.rebalancing.new_claimant_health_element
+        expected_health = (
+            float(
+                sim.tax_benefit_system.parameters(
+                    str(year)
+                ).gov.dwp.universal_credit.rebalancing.new_claimant_health_element
+            )
         )
 
         assert health_element == pytest.approx(expected_health)
+
+
+def test_standard_allowance_reforms_still_change_standard_allowance(monkeypatch):
+    _force_uc_seed(monkeypatch, [0.99])
+    baseline = Simulation(situation=_uc_claimant(30))
+    reformed = Simulation(
+        situation=_uc_claimant(30),
+        reform={
+            "gov.dwp.universal_credit.standard_allowance.amount.SINGLE_OLD": {
+                "2025-01-01.2100-12-31": 800
+            }
+        },
+    )
+
+    baseline_standard_allowance = baseline.calculate("uc_standard_allowance", 2026)[0]
+    reformed_standard_allowance = reformed.calculate("uc_standard_allowance", 2026)[0]
+
+    assert reformed_standard_allowance / baseline_standard_allowance > 1.5