Opening the black box: towards a transparent and widely-used tax-benefit model for the UK

Tax-benefit models are used to answer ‘what if’ questions about the effects of specific tax and benefit reforms on household incomes. This project aims to meet the demand for tax-benefit modelling capacity among UK organisations (and individuals) and to promote its use more widely as a way to improve the evidence base to better inform current policy debates.

Tax-benefit models use survey data as the basis on which to model the impact and costs of proposed changes to the tax and benefit system, arithmetic calculations are carried out for each household in a dataset and the first order effects on the overall public budget, across the distribution of income and by household characteristics are obtained.  There are a number of tax-benefit models that are regularly maintained and updated in the UK, but they are not widely available to use and require specialist skills. The exception is the UK component of EUROMOD.  This project will consolidate UKMOD as a reliable, flexible, accessible and transparent tax-benefit model and will adapt and extend it to increase its relevance for UK policy analysis. It will also develop a simplified approach to using selected parts of the model by non-expert users.

Specific developments include:

• A review of methods and procedures to establish a regular release of UKMOD in advance of the Autumn Budget, based on the most recently released Family Resources Survey (FRS) data and with policies and incomes projected to the following fiscal year.
• The addition of features that will facilitate the analysis of policy options in Scotland, Wales, Northern Ireland and England separately as well as the UK as a whole.
• A review of income concepts and measurements used in outcome measures of household income with reference to those used in key UK statistics such as the DWP’s Households Below Average Income (HBAI) in order to minimise differences in estimates of income distribution and poverty produced by UKMOD.
• Innovations to make the straightforward use of the model less complex and more user-friendly for non-academic and novice audiences. These include building a platform to generate simplified user interfaces.
• The creation of a case study to provide concrete illustrations of the ways tax-benefit modelling can be used to understand the effects and implications of complex reforms using the introduction of a Basic Income (BI) into the UK tax-benefit system as an example.