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:

macroeconomic year-on-year growth rates (CPI, average earnings, RPI, CPIH),
benefit and tax parameter uprating,
a calibration step that reweights households to match published aggregates (caseloads, fiscal totals).

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¶

Aspect	Resolution Foundation	PolicyEngine UK
Wage floor	Models 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 uprating is held in `gov/hmrc/minimum_wage/` and only enters when a reform invokes it.
Spillovers	Includes 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 extensions	Models 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`) but extensions only flow into outputs if a household’s wage actually falls below the modelled floor — there is no explicit re-anchoring of earnings.
Beyond 2025-26	Assumes the wage floor grows in line with average earnings.	Same effective behaviour, but driven by uprating rather than a wage-floor rule.

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¶

Aspect	Resolution Foundation	PolicyEngine UK
Working-age benefits	Uses 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 Pension	Models 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¶

Aspect	Resolution Foundation	PolicyEngine UK
Approach	Uses 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¶

Aspect	Resolution Foundation	PolicyEngine UK
Targets	Aligns 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¶

RF: typically 4-5 years ahead in detail; long-run sensitivities run separately.
PolicyEngine: 5+ years ahead using the OBR EFO supplemented by long-run equilibrium assumptions in yoy_growth.yaml (see growthfactors.md and the gov/economic_assumptions/README.md for the 2031+ construction).

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:

Wage-floor handling — concentrated in low-pay groups (young workers, hospitality, retail). RF nowcasts higher real earnings growth here.
Take-up calibration vintage — both models drift between official take-up statistics releases; align to the same vintage before comparing.
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.
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¶

Resolution Foundation, Living Standards Outlook 2025 — appendix details the RF nowcast methodology.
Resolution Foundation, budget preview reports — operational pre-budget application.
PolicyEngine, growthfactors.md — economic assumption growth rates.
PolicyEngine, policyengine_uk/parameters/gov/economic_assumptions/README.md — three-horizon construction of growth series.
policyengine-uk-data — calibration targets and reweighting code.