[vahid-ahmadi]

Corrects the indirect tax effects of reforms planning page (docs/book/policy/indirect-tax-effects-plan.md), written for #1114.

The page itself is already on main: it shipped in #2386 (merged 21 October 2026), and its original .added changelog entry was released in 2.143.0. This branch has merged main, dropped the released fragment and now carries only corrections to main's copy of the page.

What this PR corrects (from its changelog fragment):

Corrected the indirect tax effects planning page (docs/book/policy/indirect-tax-effects-plan.md): UKMOD's TCO technical note does not give the 0.8 consumption elasticity reported in #1114, labour supply responses run through two separate routes, fuel duty also reads LPG and natural gas inputs, and a formula on a consumption input would not change values supplied by a dataset.

The claim-by-claim review behind these corrections, with sources, is in the "Ready for hub review" comment on this PR.

• Changelog fragment: changelog.d/1114-indirect-tax-page-corrections.changed.md (changed).
• Docs and changelog only; no code changes.

🤖 Generated with Claude Code

[MaxGhenis]

UK hub (Claude build session, for Max)
Ready for hub review

Head: 08cd556dfd56196e805c0fd06fe0b0fcb2a5a954

Context. This page already reached main, byte for byte, through #2386 (merged 21 October 2026; batch commit d50ee85), and its 1114.added.md entry is already in CHANGELOG.md under 2.143.0. I merged origin/main into this branch (no rebase, no force-push), deleted the released .added fragment, and corrected the page. The PR's net diff against main is now just those corrections plus changelog.d/1114-indirect-tax-page-corrections.changed.md. Suggested title: "Correct the indirect tax effects planning page".

Review. I had a verifier extract and check every claim, checked each correction myself, and then ran independent adversarial reviews. Round 1 asked for changes, and round 2 approved this head.

Corrected (12)

1. The 0.8 elasticity. Model indirect tax effects of individual tax reforms #1114's figure cites only a ChatGPT conversation. UKMOD's own TCO technical note (revised October 2025, https://www.microsimulation.ac.uk/wp-content/uploads/2026/01/TCO-extension-v3.pdf) gives no 0.8. It offers three alternative assumptions: constant income shares (+1 elasticity), constant expenditure shares, and constant quantities (0). The page and its reference now say this.
2. Removed "such as UKMOD's" from the proposed default.
3. Labour supply runs through two separate routes:
   • employment_income_behavioral_response reads gov.simulation.labour_supply_responses, which is 0 by default (variables/gov/simulation/labour_supply_response/employment_income_behavioral_response.py:16-21).
   • Simulation.apply_dynamics (simulation.py:1413-1424) runs apply_labour_supply_responses, which applies the OBR's elasticities when gov.dynamic.obr_labour_supply_assumptions is true (the default) and there is a baseline (dynamics/labour_supply.py:126-132).
4. Fuel duty also reads lpg_kg and natural_gas_kg (variables/gov/hmrc/fuel_duty/fuel_duty.py:19-22).
5. policyengine-core has no default_formula, and a dataset value is returned before any formula runs (core simulations/simulation.py:1628-1631). Option 1 of the hook design now says so.
6. "Nearly income-inelastic" became "less income-elastic", because that claim is unsourced.
7. ONS publishes no LCF income elasticities; they would be estimated from LCF microdata.
8. The reference is the Family spending bulletin, the LCF's headline publication.
9. Cut the uncited claim about low-income households' marginal propensity to consume; it is now an open question.
10. The saving share implied by the Phase 1 factor is 1 − elasticity × baseline consumption / baseline net income.
11. The Phase 3 test is now conditional on Phase 3. Today consumer_incident_tax_revenue_change spreads the lever's £bn amount by consumption share, so its weighted aggregate equals that amount (variables/contrib/policyengine/consumer_incident_tax_revenue_change.py:12-22).
12. Replaced the released .added fragment with a .changed fragment.

Checked and correct (unchanged)

• gov.contrib.policyengine.budget.consumer_incident_tax_change exists, with a value of 0.
• No automatic pass-through from direct to indirect taxes. Grep confirms it, and a household run left consumption, VAT and the duties unchanged under an income tax cut.
• consumption adds exactly twelve COICOP categories (variables/input/consumption/consumption.py:12-25), and VAT reads it through the two VAT bases.
• Alcohol duty reads the *_litres inputs and tobacco duty reads cigarettes_per_week and *_grams_per_week, at the paths given.
• relative_income_change is per person and clipped.
• Model indirect tax effects of individual tax reforms #1114 is open, the proposed names don't exist on main, and all links return 200.

Left for the hub (plan design, not page facts)

• Phase 3 as written would be circular: household_net_income subtracts household_tax, which includes the lever. It would also double count VAT in gov_tax (gov_tax.py:27,30).
• household_tax counts vat_change, so a consumption response alone would not move household_tax.