Lori Williams struggles to make ends meet. Earning a low income with little support, she says she feels like she is “living on the bare bones” and is barely getting by.
She is one of a large group of people from low-income families who find themselves in a precarious position, earning too little to comfortably support themselves, but earning too much to qualify for significant financial assistance.
For people like Laurie, working more or earning a higher income could mean losing vital support like Universal Credit, leaving them no better off, and in some cases worse off.
Lori Williams at her home
Higher tax bills for the less well-paid
Lori’s salary is not high enough to pay taxes. But there is a broader group of low-income people who face a heavy tax burden.
Sky News analysis found that in the past three years, workers in the top 25% of income earners received a 60% tax rise.
This is due to freezing Personal allowanceswhich was introduced in 2021 and is set to expire in 2028. Each year the freeze is in effect, income earners actually see their tax rates rise in the year Real terms As a higher percentage of their income becomes taxable.
Labor may extend its budget freeze this week. If the Minister of Finance continues to implement the plan, about 400,000 people who are currently exempt will find themselves paying income tax, and many current taxpayers will pay higher rates.
Furthermore, low- to middle-income households are seeing a significant stagnation in the extent to which their income has risen, according to an analysis of Department for Work and Pensions (DWP) data by Resolution.
This finding is part of a forthcoming report in November, obtained by Sky News, which will delve deeper into the financial pressures these households face.
Between the mid-1990s and early 2000s, low- to middle-income households saw income rise by nearly 50%. But in the past decade, this growth has slowed dramatically to just 11%.
Earnings volatility and interest pressure
The government is also reportedly considering restricting sickness benefits, a move that could exacerbate the problem.
“Economic vulnerability and insecurity are particularly high among people with ill health or disability,” said Alfie Stirling, Director of Insight and Policy at the Joseph Rowntree Foundation.
“Any policy that reduces their support, or limits access to it, is likely to exacerbate difficulties and increase the number of people at risk,” he added.
Low-income families in these situations can receive state support such as Universal Credit to supplement their income.
Universal Credit, first introduced in 2013, combines several state-funded benefits, including housing support, child tax credits and income support, into one payment. It provides support to families inside and outside of work.
About 2.5 million people in work receive this support, but some, like Lowry, a part-time charity worker, sometimes miss it because monthly earnings fluctuate.
Universal Credit is reduced by 55p for every £1 earned, a calculation known as the graduated rate. Some people receive benefits before this reduction, depending on their circumstances.
“If your earnings go over the cap, you lose out straight away. Not only will you lose out on Universal Credit, you’ll also lose out on the council tax benefits, which is another £150 a month,” explained Lowry, who was impressed by the graduated rate.
“So, while you might gain an extra £50, you could end up £100 worse off.”
“Every penny you make is just bills,” she said.
Find ways to save
Below is the Lowri household’s spending on some essential bills.
While she is able to get UC, she is eligible for social tariffs, a discounted package for household bills, which can help her save.
This could save around £70 on Lowri’s mobile and broadband budget, according to analysis by Nous, an AI-powered bill tracker.
With the application of social tariffs, the water bill can be reduced by half.
National living wage
While Laurie’s income means she does not pay tax, people on the National Living Wage (NLW) scheme, which is £11.44 an hour (£22,308 a year), and who earn more than her, are severely affected by the Conservative government’s tax and benefits decisions. . , which Labor is said to be proposing to extend.
In the March Budget, NLW increased by 10%.
The Chancellor may announce another increase in the NLW in this week’s Budget, which sounds like good news.
But Lalitha Tri, an economist at the Decision Foundation, says: “Our research shows that the introduction and increase of the minimum wage has led to a significant increase in the living standards of low-income families over the past 25 years.
“But it is important to realize that there are limits to what can be achieved. For workers on Universal Credit, more than half of wage gains will be clawed back through lower benefit entitlements.
The minimum wage cannot help those who may earn more than the legal minimum but suffer from limited working hours or high housing costs. Other policies are needed to solve these challenges.”
Losing access to support such as Universal Credit may also mean that people are no longer eligible for things like social tariffs and free school meals.
Furthermore, the freeze on personal allowance limits, which most severely affects the bottom 25% of UK earners, has also had a significant impact on people receiving NLW.
The amount of tax a person working full-time on the living wage they would pay annually in 2024/25 is £1,000 more in real terms than it was in 2019/2020.
That’s a lot of money for someone earning just over £22,000 a year.
This means that the effective tax rate nearly doubled, from 4.4% to 8.7%, within five years.
These are just a few examples of how an increase in NLW means they have less money in their pockets.
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Two salaries and you’re still struggling
It’s a similar story for people in terms of what is meant to be a more comfortable income.
Chris and Tracey Matthewman, who live with their three daughters in Basildon, Essex, are among tens of millions of people living below the Minimum Income Standard (MIS).
This is the amount that the Joseph Rowntree Foundation identifies as necessary for an acceptable standard of living.
It goes beyond just food, clothing and shelter; It includes the ability to participate in society, such as the ability to socialize and have access to technology.
In 2024, the price of an MIS is £28,000 for a single person and £69,400 for a couple with two children.
Tracy teaches primary school and Chris looks after the fleet of vehicles his company uses.
Matthewman family
Matthewman’s household income is below the minimum income standard (MIS) for a family of her size, just over £80,000 in total.
After tax, the combined household income is around £4,000 per month. Much of that is spent on energy bills and council tax, not to mention other essentials.
Chris is clearly worried about how to keep the family afloat. When I visited his home, he repeatedly showed me his detailed spreadsheet that he uses to meticulously track his family’s expenses.
“It’s frustrating,” Chris says. “We have to accept paycheck to paycheck, just surviving month to month.”
Tracey had this message for Rachel Reeves, the chancellor, ahead of Labour’s budget: “They need to remember that there are people living in this country who are not receiving any benefits and are still struggling.”
“We’re in that demographic that ends up paying more — more National Insurance, more taxes. We keep getting tighter, but we don’t qualify for any benefits. It’s tough.”
Additional reports: Daniel Dunford, senior data journalist
the Data and forensics The team is a multi-skilled unit dedicated to providing transparent journalism from Sky News. We collect, analyze, and visualize data to tell data-driven stories. We combine traditional reporting skills with advanced analysis of satellite imagery, social media and other open source information. Through multimedia storytelling, we aim to explain the world better while also showing how our journalism works.