Lowri Williams is struggling to cover her basic expenses. Earning a low income with very little support, she says she feels like she’s “living hand-to-mouth” and barely getting by.
She’s one of a large group of people in low-income households who are caught in a precarious position, earning too little to comfortably support themselves, but too much to qualify for significant financial help.
For people like Lowri, working more or earning a higher income could mean losing vital support like Universal Credit, leaving them no better off and in some cases even worse off.
Image: Lowri Williams in her home
Higher tax bills for the lowest paid
Lowri’s salary is not high enough to pay tax. But there’s a wider group of low-income earners who are facing a heavy tax burden.
Sky News analysis has found that in the last three years, working people in the bottom 25% of earners have effectively had a 60% tax hike.
This is due to the freeze on personal allowances, introduced in 2021 and scheduled to end in 2028. For each year the freeze is enacted, earners effectively see their tax rates rise in real terms as a higher proportion of their income becomes taxable.
Labour may extend the freeze in their budget this week. If the chancellor proceeds with the plan, around 400,000 people who are currently exempt will find themselves paying income tax, and many current taxpayers will pay higher rates.
On top of this, low to middle-income households are seeing significant stagnation in how much their income is going up, according to analysis of Department for Work and Pensions (DWP) data by the Resolution Foundation.
This finding is part of an upcoming 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 experienced an almost 50% rise in income. But in the last decade, that growth has slowed dramatically to just 11%.
Fluctuating earnings and a squeeze on benefits
The government is also reportedly considering restricting sickness benefits, a move which may exacerbate the issue.
“Economic vulnerability and insecurity are particularly high among people with ill health or disabilities,” said Alfie Stirling, director of insight and policy at the Joseph Rowntree Foundation.
“Any policy that reduces their support, or limits access to it, will likely worsen hardship and increase the number of people at risk,” he added.
Low income families in these situations can receive state support like 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 households both in and out of work.
Around 2.5 million people in work receive this support, but some, like Lowri, a part-time charity worker, miss out at times due to fluctuating monthly earnings.
Universal Credit is reduced by 55p for every £1 earned, a calculation known as the taper rate. Some people receive an allowance before this reduction, depending on their circumstances.
Lowri, who is impacted by the taper rate, explained: “If you earn over the limit, you lose out immediately. Not only do you lose Universal Credit, but also your council tax benefit, which is another £150 a month.
“So, while you might earn £50 more, you could end up £100 worse off.”
“Every penny you have coming in is paying just bills,” she said.
Finding ways to save
Below is Lowri’s household expenditure for some essential bills.
While she’s able to receive UC, she’s eligible for social tariffs, which are a discounted package for household bills, which could help her save.
This could amount to a saving of nearly £70 for Lowri’s mobile and broadband budget, according to analysis by Nous, an AI-powered bill-tracking tool.
With social tariffs in place, her water bill could be cut in half.
The National Living Wage
While Lowri’s income means she doesn’t pay tax, people on the National Living Wage (NLW), £11.44 per hour (£22,308 annually), who earn more than her, are heavily affected by tax and benefits decisions made by the Conservative government, which Labour are reportedly proposing to extend.
At the budget in March, the NLW increased by 10%.
The chancellor may announce a further hike in the NLW at this week’s budget, which sounds like good news.
But Lalitha Try, economist at the Resolution Foundation says: “Our research shows that the introduction and ramping up of the minimum wage has delivered a major living standards boost to lower income families over the past 25 years.
“But it’s important to recognise that there are limits to what it can achieve. For workers on Universal Credit, over half of the wage gains will be clawed back through lower benefit entitlement.
And the minimum wage can’t help those who may earn more than the legal minimum but struggle with low hours or high housing costs. Other policies are needed to solve those challenges.”
Losing access to support like Universal Credit could also mean people no longer qualify for things like social tariffs and free school meals.
On top of that, the freezing of the personal allowance thresholds which heavily affects the lowest 25% of earners in the UK has also had a significant impact on people earning the NLW.
The amount of tax that someone working full time on the living wage will pay annually in 2024/2025 is over £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 per year.
It means their effective tax rate has almost doubled, from 4.4% to 8.7%, in five years.
These are only a few examples of how an increase in NLW means they have less money in their pockets.
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2:26
How much does this family spend per month?
Two salaries and still struggling
It’s a similar story for people on what is meant to be a more comfortable income.
Chris and Tracey Matthewman, who live with their three daughters in Basildon, Essex, are among the tens of millions of people living below the Minimum Income Standard (MIS).
This is the amount the Joseph Rowntree Foundation defines 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 being able to socialise and having access to technology.
In 2024, the MIS was £28,000 for a single person and £69,400 for a couple with two children.
Tracey teaches in a primary school and Chris looks after the fleet of vehicles his company uses.
Image: The Matthewman family
The Matthewman household income is below the Minimum Income Standard (MIS) for a family of their size, a little over £80,000 in total.
After tax, their combined household income is around £4,000 a month. A lot of that gets 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 which he uses to meticulously track his family’s expenses.
Chris says: “It’s frustrating. We have to accept living paycheque to paycheque, just surviving month to month.”
And 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 don’t receive any benefits and are still struggling.”
“We’re in that demographic that ends up paying more – more national insurance, more tax. We keep tightening up, but we’re not eligible for any benefits. That’s tough.”
Additional reporting: Daniel Dunford, Senior Data Journalist
The Data and Forensics team is a multi-skilled unit dedicated to providing transparent journalism from Sky News. We gather, analyse and visualise data to tell data-driven stories. We combine traditional reporting skills with advanced analysis of satellite images, social media and other open source information. Through multimedia storytelling, we aim to better explain the world while also showing how our journalism is done.
The chancellor has confirmed she is considering “changes” to ISAs – and said there has been too much focus on “risk” in members of the public investing.
In her second annual Mansion House speech to the financial sector, Rachel Reeves said she recognised “differing views” over the popular tax-free savings accounts, in which savers can currently put up to £20,000 a year.
She was reportedly considering reducing the threshold to as low as £4,000 a year, in a bid to encourage people to put money into stocks and shares instead and boost the economy.
However the chancellor has shelved any immediate planned changes after fierce backlash from building societies and consumer groups.
In her speech to key industry figures on Tuesday evening, Ms Reeves said: “I will continue to consider further changes to ISAs, engaging widely over the coming months and recognising that despite the differing views on the right approach, we are united in wanting better outcomes for both savers and for the UK economy.”
She added: “For too long, we have presented investment in too negative a light, quick to warn people of the risks, without giving proper weight to the benefits.”
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6:36
Rachel Reeves’s fiscal dilemma
Ms Reeves’s speech, the first major one since the welfare bill climbdown two weeks ago, appeared to encourage regulators to focus less on risks and more on the benefits of investing in things like the stock market and government bonds (loans issued by states to raise funds with an interest rate paid in return).
She welcomed action by the financial regulator to review risk warning rules and the campaign to promote retail investment, which the Financial Conduct Authority (FCA) is launching next year.
“Our tangled system of financial advice and guidance has meant that people cannot get the right support to make decisions for themselves”, Ms Reeves told the event in London.
Last year, Ms Reeves said post-financial crash regulation had “gone too far” and set a course for cutting red tape.
On Tuesday, she said she would announce a package of City changes, including a new competitive framework for a part of the insurance industry and a regulatory regime for asset management.
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4:21
Reeves is ‘totally’ up for the job
In response to Ms Reeves’s address, shadow chancellor Sir Mel Stride said: “Rachel Reeves should have used her speech this evening to rule out massive tax rises on businesses and working people. The fact that she didn’t should send a shiver down the spine of taxpayers across the country.”
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The governor of the Bank of England, Andrew Bailey, also spoke at the Mansion House event and said Donald Trump’s taxes on US imports would slow the economy and trade imbalances should be addressed.
“Increasing tariffs creates the risk of fragmenting the world economy, and thereby reducing activity”, he said.
The taxpayer is to help drive the switch to non-polluting vehicles through a new grant of up to £3,750, but some of the cheapest electric cars are to be excluded.
The Department for Transport (DfT) said a £650m fund was being made available for the Electric Car Grant, which is due to get into gear from Wednesday.
Users of the scheme – the first of its kind since the last Conservative government scrapped grants for new electric vehicles three years ago – will be able to secure discounts based on the “sustainability” of the car.
It will apply only to vehicles with a list price of £37,000 or below – with only the greenest models eligible for the highest grant.
Buyers of so-called ‘Band two’ vehicles can receive up to £1,500.
The qualification criteria includes a recognition of a vehicle’s carbon footprint from manufacture to showroom so UK-produced EVs, costing less than £37,000, would be expected to qualify for the top grant.
More from Money
It is understood that Chinese-produced EVs – often the cheapest in the market – would not.
Image: BYD electric vehicles before being loaded onto a ship in Lianyungang, China. Pic: Reuters
DfT said 33 new electric car models were currently available for less than £30,000.
The government has been encouraged to act as sales of new electric vehicles are struggling to keep pace with what is needed to meet emissions targets.
Challenges include the high prices for electric cars when compared to conventionally powered models.
At the same time, consumer and business budgets have been squeezed since the 2022 cost of living crisis – and households and businesses are continuing to feel the pinch to this day.
Another key concern is the state of the public charging network.
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3:29
The Chinese electric car rivalling Tesla
Transport Secretary Heidi Alexander said: “This EV grant will not only allow people to keep more of their hard-earned money – it’ll help our automotive sector seize one of the biggest opportunities of the 21st century.
“And with over 82,000 public charge points now available across the UK, we’ve built the infrastructure families need to make the switch with confidence.”
The Government has pledged to ban the sale of new fully petrol or diesel cars and vans from 2030 but has allowed non-plug in hybrid sales to continue until 2025.
It is hoped the grants will enable the industry to meet and even exceed the current zero emission vehicle mandate.
Under the rules, at least 28% of new cars sold by each manufacturer in the UK this year must be zero emission.
The figure stood at 21.6% during the first half of the year.
The car industry has long complained that it has had to foot a multi-billion pound bill to woo buyers for electric cars through “unsustainable” discounting.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said the grants sent a “clear signal to consumers that now is the time to switch”.
He went on: “Rapid deployment and availability of this grant over the next few years will help provide the momentum that is essential to take the EV market from just one in four today, to four in five by the end of the decade.”
But the Conservatives questioned whether taxpayers should be footing the bill.
Shadow transport secretary Gareth Bacon said: “Last week, the Office for Budget Responsibility made clear the transition to EVs comes at a cost, and this scheme only adds to it.
“Make no mistake: more tax rises are coming in the autumn.”
A leading financier and Conservative Party donor is among the contenders vying to chair Channel 4, the state-owned broadcaster.
Sky News has learnt from Whitehall sources that Wol Kolade has been shortlisted to replace Sir Ian Cheshire at the helm of the company.
Mr Kolade, who has donated hundreds of thousands of pounds to Tory coffers, is said by Whitehall insiders to be one of a handful of remaining candidates for the role.
A recommendation from Ofcom, the media regulator, to Culture Secretary Lisa Nandy about its recommendation for the Channel 4 chairmanship is understood to be imminent.
Mr Kolade, who heads the private equity firm Livingbridge, has held non-executive roles including a seat on the board of NHS Improvement.
He declined to comment when contacted by Sky News on Monday.
His candidacy pits him against rivals including Justin King, the former J Sainsbury chief executive, who last week stepped down as chairman of Ovo Energy.
Debbie Wosskow, an existing Channel 4 non-executive director who has applied for the chair role, is also said by government sources to have made it to the shortlist.
Sir Ian stepped down earlier this year after just one term, having presided over a successful attempt to thwart privatisation by the last Tory government.
The Channel 4 chairmanship is currently held on an interim basis by Dawn Airey, the media industry executive who has occupied top jobs at companies including ITV, Channel 5, and Yahoo!.
The race to lead the state-owned broadcaster’s board has acquired additional importance since the resignation of Alex Mahon, its long-serving chief executive.
It has since been reported that Alex Burford, another Channel 4 non-executive director and the boss of Warner Records UK, was interested in replacing Ms Mahon.
Ms Mahon, who was a vocal opponent of Channel 4’s privatisation, is leaving to join Superstruct, a private equity-owned live entertainment company.
The appointment of a new chair is expected to take place by the autumn, with the chosen candidate expected to lead the recruitment of Ms Mahon’s successor.
The Department for Culture, Media and Sport declined to comment on the recruitment process.