Stop the statutory Marriage Allowance rate from switching on the CPS expanded Marriage Allowance

changelog.d/2551.fixed.md

@@ -0,0 +1 @@
+- A change to the statutory Marriage Allowance rate (`gov.hmrc.income_tax.allowances.marriage_allowance.max`) no longer switches on the CPS expanded Marriage Allowance reform. That reform now switches on only from its own parameters: `remove_income_condition`, or an `ma_rate` other than its default. Before, setting the statutory rate to 0 kept a 10% allowance for basic-rate couples and gave it to higher- and additional-rate couples, so income tax fell; now it removes the allowance.

policyengine_uk/reforms/cps/marriage_tax_reforms.py

@@ -218,14 +218,18 @@ def create_marriage_tax_reform(parameters, period):
     cps = parameters(period).gov.contrib.cps.marriage_tax_reforms
     remove_income_condition = cps.expanded_ma.remove_income_condition
     rate = cps.expanded_ma.ma_rate
-    original_rate = parameters(
-        period
-    ).gov.hmrc.income_tax.allowances.marriage_allowance.max
+    # The expanded Marriage Allowance switches on from its own parameters
+    # only: its switch, or a rate other than its own unreformed value.
+    # Comparing the rate with the statutory rate instead would switch it on
+    # whenever the statutory rate changed, replacing that rate with the
+    # reform's and opening the allowance to higher-rate taxpayers (#2551).
+    unreformed = parameters.baseline.gov.contrib.cps.marriage_tax_reforms
+    default_rate = unreformed.expanded_ma.ma_rate(period)
     ma_max_child_age = cps.expanded_ma.max_child_age
     neutralise_income_tax = cps.marriage_neutral_it.neutralise_income_tax
     it_max_child_age = cps.marriage_neutral_it.max_child_age
 
-    if remove_income_condition or rate != original_rate:
+    if remove_income_condition or rate != default_rate:
         ma_reform = create_expanded_ma_reform(
             max_child_age=ma_max_child_age if ma_max_child_age > 0 else None,
         )

policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/allowances/marriage_allowance_statutory_rate.yaml

@@ -0,0 +1,146 @@
+# The statutory Marriage Allowance rate (#2551), for the two couples in the
+# issue, by hand from the 2025-26 parameters: a £12,570 personal allowance, then
+# 20% on the first £37,700 of taxable income and 40% above it.
+#
+# - Earner of £30,000: (30,000 - 12,570) x 20% = 3,486. At the 10% rate the
+#   partner transfers 12,570 x 10% = 1,257, rounded up to the next £10: 1,260,
+#   worth 1,260 x 20% = 252, so 3,234. At 20%, 2,514 rounds up to 2,520, worth
+#   504, so 2,982. At 0 there is no allowance: 3,486.
+# - Earner of £60,000: 37,700 x 20% + (60,000 - 12,570 - 37,700) x 40%
+#   = 7,540 + 3,892 = 11,432. A higher-rate taxpayer gets no allowance at any
+#   statutory rate.
+#
+# These runs apply the parameter change without policyengine_uk.Simulation, so
+# they never run the parameter-switched structural reforms. The CPS reform's
+# switch, which a statutory rate change used to set off, is tested through
+# Simulation in policyengine_uk/tests/test_marriage_allowance_cps_switch.py.
+
+- name: Current law gives the basic-rate earner a 10% Marriage Allowance
+  period: 2025
+  absolute_error_margin: 1
+  input:
+    people:
+      earner:
+        age: 40
+        employment_income: 30_000
+      partner:
+        age: 40
+    benunits:
+      benunit:
+        members: [earner, partner]
+        is_married: true
+    households:
+      household:
+        members: [earner, partner]
+  output:
+    marriage_allowance: [1_260, 0]
+    income_tax: [3_234, 0]
+
+- name: A statutory rate of 0 removes the basic-rate earner's Marriage Allowance
+  period: 2025
+  absolute_error_margin: 1
+  input:
+    gov.hmrc.income_tax.allowances.marriage_allowance.max: 0
+    people:
+      earner:
+        age: 40
+        employment_income: 30_000
+      partner:
+        age: 40
+    benunits:
+      benunit:
+        members: [earner, partner]
+        is_married: true
+    households:
+      household:
+        members: [earner, partner]
+  output:
+    marriage_allowance: [0, 0]
+    income_tax: [3_486, 0]
+
+- name: A statutory rate of 20% doubles the basic-rate earner's Marriage Allowance
+  period: 2025
+  absolute_error_margin: 1
+  input:
+    gov.hmrc.income_tax.allowances.marriage_allowance.max: 0.2
+    people:
+      earner:
+        age: 40
+        employment_income: 30_000
+      partner:
+        age: 40
+    benunits:
+      benunit:
+        members: [earner, partner]
+        is_married: true
+    households:
+      household:
+        members: [earner, partner]
+  output:
+    marriage_allowance: [2_520, 0]
+    income_tax: [2_982, 0]
+
+- name: Current law gives the higher-rate earner no Marriage Allowance
+  period: 2025
+  absolute_error_margin: 1
+  input:
+    people:
+      earner:
+        age: 40
+        employment_income: 60_000
+      partner:
+        age: 40
+    benunits:
+      benunit:
+        members: [earner, partner]
+        is_married: true
+    households:
+      household:
+        members: [earner, partner]
+  output:
+    marriage_allowance: [0, 0]
+    income_tax: [11_432, 0]
+
+- name: A statutory rate of 0 leaves the higher-rate earner's income tax unchanged
+  period: 2025
+  absolute_error_margin: 1
+  input:
+    gov.hmrc.income_tax.allowances.marriage_allowance.max: 0
+    people:
+      earner:
+        age: 40
+        employment_income: 60_000
+      partner:
+        age: 40
+    benunits:
+      benunit:
+        members: [earner, partner]
+        is_married: true
+    households:
+      household:
+        members: [earner, partner]
+  output:
+    marriage_allowance: [0, 0]
+    income_tax: [11_432, 0]
+
+- name: A statutory rate of 20% still gives the higher-rate earner no Marriage Allowance
+  period: 2025
+  absolute_error_margin: 1
+  input:
+    gov.hmrc.income_tax.allowances.marriage_allowance.max: 0.2
+    people:
+      earner:
+        age: 40
+        employment_income: 60_000
+      partner:
+        age: 40
+    benunits:
+      benunit:
+        members: [earner, partner]
+        is_married: true
+    households:
+      household:
+        members: [earner, partner]
+  output:
+    marriage_allowance: [0, 0]
+    income_tax: [11_432, 0]