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PolicyEngine vs Resolution Foundation nowcasting

The Resolution Foundation (RF) publishes a UK microsimulation nowcast as part of its Living Standards Outlook and pre-budget previews. RF documents its methodology in the LSO appendix; PolicyEngine’s approach is spread across this repo, policyengine-uk-data, and the parameters under gov/economic_assumptions/. This page summarises how the two approaches differ at a high level so users can interpret discrepancies between the two nowcasts.

For a focused write-up of how PolicyEngine generates the economic growth factors, see growthfactors.md.

Common ground

Both PolicyEngine and RF start from the same survey backbone — the Family Resources Survey (FRS) plus its companion datasets (HBAI) — and project it forward using a mix of:

In broad strokes both nowcasts produce gross-to-net household incomes and participation-weighted programme spending consistent with OBR-published totals over the next two-to-three fiscal years.

Where the methodologies diverge

Earnings growth

AspectResolution FoundationPolicyEngine UK
Wage floorModels the National Living Wage / NMW explicitly each year, lifting anyone below their age-appropriate minimum to the floor.Earnings are uprated by the OBR average-earnings index without an explicit floor; minimum wage rates are held in gov/hmrc/minimum_wage/ and projected after the last rate set by the OBR’s national living wage forecast, then average earnings; they enter through the rules that read them (the Universal Credit minimum income floor and benefit cap earnings exception, the childcare earnings tests, ESA permitted work and the Carer’s Allowance earnings limit), not through earnings.
SpilloversIncludes a spillover effect for workers just above the wage floor (compression of the lower wage distribution).No automatic spillover; earnings shift uniformly with the OBR index.
NLW extensionsModels the 2024-25 extension of the NLW to 21- and 22-year-olds, and provisionally the 2029-30 extension to 18-20-year-olds.NLW age bands are encoded in parameters (gov/hmrc/minimum_wage). A change to a band, such as extending the NLW to younger workers, reaches outputs through the rules that read a person’s age-band rate (the Universal Credit minimum income floor and the childcare earnings tests); earnings are not re-anchored to the floor.
Beyond 2025-26Assumes the wage floor grows in line with average earnings.Minimum wage rates after the last one set grow by uprating rather than a wage-floor rule: with the OBR’s national living wage forecast to the end of the EFO, then with average earnings. Like the model’s other indices, the projection ends with the growth series, in 2074.

Practical implication. Low-paid workers’ incomes can grow faster under the RF nowcast than under PolicyEngine because the wage floor binds and ripples up; PolicyEngine treats them like everyone else under the OBR earnings index.

Benefit uprating

AspectResolution FoundationPolicyEngine UK
Working-age benefitsUses statutory uprating with explicit overrides for announced policy (e.g. CoL Payments, benefit freezes).Same approach. Parameters under gov/dwp/ and gov/hmrc/child_benefit/ track legislated rates; ad hoc payments live under gov/treasury/cost_of_living_support.
State PensionModels the triple lock explicitly, using its own internal earnings/CPI forecasts.Models the triple lock from its statutory inputs (September CPI, May-July AWE total pay growth, 2.5% floor) in gov/economic_assumptions/statutory_uprating_inputs/ and gov/dwp/state_pension/triple_lock/, forecast from the OBR’s September CPI and Q2 earnings growth to the end of the EFO and calendar-year growth after; see the State Pension page.

Take-up

AspectResolution FoundationPolicyEngine UK
ApproachUses HMRC/DWP outturn take-up rates and aligns simulated caseloads to published totals via calibration.Same: each means-tested benefit has a *_takeup_rate parameter populated stochastically into would_claim_* flags in policyengine-uk-data, and the reweighting step in policyengine-uk-data enforces caseload alignment.

Calibration / reweighting

AspectResolution FoundationPolicyEngine UK
TargetsAligns to a mix of HMRC, DWP and ONS aggregates.Aligns to the same family of targets, but is publicly documented in policyengine-uk-data (targets/) and includes finer-grained local-authority targets for council tax and rents (see policyengine-uk-data/datasets/local_areas/).

Horizon

Interpreting discrepancies

When PolicyEngine and RF disagree on a published statistic (e.g. relative poverty, fiscal cost of a reform), the main sources of difference tend to be:

  1. Wage-floor handling — concentrated in low-pay groups (young workers, hospitality, retail). RF nowcasts higher real earnings growth here.

  2. Take-up calibration vintage — both models drift between official take-up statistics releases; align to the same vintage before comparing.

  3. Local-area targets — PolicyEngine’s calibration includes LA-level rent and council tax targets that the public RF nowcast does not, which can shift housing-cost and disposable-income distributions.

  4. Long-run horizon — beyond 2030 the divergence widens because the two models use different long-run rules; treat post-2030 figures as illustrative rather than authoritative.

References

Assumptions
Benefit expenditure paid outside UK private households (planned)
Assumptions
Resolution Foundation nowcasting methodology