A substantial portion of the proposed Universal Services relate to reductions in the cost of living per household, rather than per person. To estimate the effects on households we take the MIS household types as a base as this allows looking across various configurations of adults and children.
The analysis can only approximate effects because different household configurations can and do have mixed incomes across the adults in a household. So while the value of the Universal Services is relatively easy to assign, the increases in taxation as a result of National Contributions, applied to benefit income or other income, has been simplified into quintiles.
Methodology: Household Liability on Benefits
To arrive at the distributional effects of National Contributions in combination with Universal Services we model additional taxes due under NC versus the current tax system and include that in the calculations of overall disposable income effects on each household type in each quintile of the income range.
For households in Q1 we assume, reasonably, that the Voluntary National Contributions threshold exceeds total income. The uprated 2025 income lower bound for the 20th percentile is £12,869 and the VNC threshold is set at £12,570. Any income, from benefits or other sources, would fall substantially within the VNC threshold and we have assumed that 0% of VNC contributions are paid.
For benefit incomes in Q2 through Q5 we have scaled the benefit income to percentages of the calculated benefit entitlements 44%, 18%, 10%, 6%. FRS data shows that cash benefit income extends throughout the income range and these percentages were selected to match the proportionality between quintiles observed in the FRS data.
In order to estimate the net effects on different household types, we use the following logic:
- Benefit Income for HH type from FRS data
- Primary income for HH type from FRS data
- Applied NC tax effective rate at Primary NC income percentile to the Primary income
- Applied NC tax marginal rate at Primary NC income percentile to the Benefit income with allowances for each dependent child
This results in 2 values: NC liability on Primary Income, and NC due on Benefits income. As NC on Benefits phases in over three years, delayed by one year from the introduction of NC, the values can be applied separately to waterfalls of the effects on household disposable income.
IGP P2030 Model ref: HH13 × Quintile NC Tax Tables