This page summarises the Resolution Foundation (RF) microsimulation
nowcasting methodology, drawing on the appendix to RF’s Living Standards
Outlook 2025 and the methodological notes in Black holes and
consolidations. It is a paired reference for PolicyEngine UK’s
own assumptions — see growthfactors.md for the
PolicyEngine growth rates and nowcasting-comparison.md
for the high-level differences.
Data foundation¶
RF’s nowcast starts from the same UK household microdata that PolicyEngine uses — the Family Resources Survey (FRS) and its Households Below Average Income (HBAI) companion — combined with a range of administrative aggregates used to anchor outputs to published totals.
Earnings growth¶
RF projects earnings forward year-by-year, with explicit minimum-wage handling rather than uniform indexation:
Wage floor. In every projected year RF lifts anyone whose hourly wage falls below their age-appropriate National Minimum Wage / National Living Wage up to that floor. Floors come from the announced NMW/NLW schedule and (beyond 2025-26) are assumed to grow in line with average earnings.
Spillover effect. For workers whose wage sits just above the floor, RF applies a partial uplift to capture wage compression at the bottom of the distribution. The magnitude is calibrated to historical evidence on NMW spillovers (RF cites the Low Pay Commission research).
NLW age extensions. RF models the 2024-25 extension of the NLW to 21- and 22-year-olds and, provisionally, the 2029-30 extension to 18- to 20-year-olds. These show up as discontinuities in the modelled wage floor for the affected cohorts.
Uniform uprating beyond the floor. Earnings above the floor are uprated equally for employees and the self-employed using OBR/BoE wage projections (constrained to ONS outturn data once published).
Housing costs¶
RF separates rent and mortgage interest:
Private rents are uprated using the ONS Price Index of Private Rents (PIPR) rather than a generic CPI-housing measure.
Social rents are uprated according to the published social-rent policy in force in each year (typically CPI + 1 percentage point, with exceptions and caps where the government has announced freezes or variations).
Mortgage interest flows are projected using OBR base-rate paths and the FRS-recorded interest portion of mortgage payments.
Benefits¶
RF takes the legislated/announced statutory uprating of working-age and pension-age benefits as given, layering on:
Caseload anchoring to current Universal Credit statistics for in-payment caseloads, so simulated UC numbers track DWP outturn rather than drift with FRS take-up.
Take-up modelling based on historical receipt rates by household type, used to scale the eligible population down to expected caseload.
Discretionary CoL payments modelled as announced (and reset to zero once the policy ends).
Inflation indices¶
RF uses the OBR EFO inflation paths (CPI, CPIH, RPI) as headline indices, supplemented by ONS-published outturns once available. Beyond the EFO forecast horizon RF holds rates flat at their final forecast value rather than constructing a separate long-run rule.
Calibration¶
RF aligns outputs to a mix of HMRC, DWP and ONS aggregates — most prominently income tax receipts, NI receipts, UC caseload and expenditure, and Pension Credit caseload. The exact target list and weights vary across reports.
Horizon¶
The Living Standards Outlook publishes detailed nowcasts about four to five fiscal years ahead of the current outturn year. Longer-run sensitivity analyses are run separately and are not part of the headline nowcast.
Where this differs from PolicyEngine¶
For a side-by-side comparison see
nowcasting-comparison.md. The three
biggest divergences are:
Wage-floor / NLW handling — RF models the floor and spillovers explicitly; PolicyEngine uprates earnings by the OBR average-earnings index and only invokes the NLW when a reform query asks for it.
Housing-cost projection — RF uses PIPR for private rents and social-rent policy for social rents; PolicyEngine uprates rents using
policyengine-uk-datalocal-authority targets and ONS rent indices.Calibration targets — PolicyEngine carries finer-grained local-authority targets for council tax and rents that the public RF nowcast does not surface.
References¶
Resolution Foundation, Living Standards Outlook 2025 — methodology appendix.
Resolution Foundation, Black holes and consolidations — fiscal context and short methodology summary.
Low Pay Commission, National Minimum Wage research reports — empirical basis for the spillover assumptions.