How the budget could make things worse for millions of working people with extreme money troubles
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.
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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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.
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.
Octopus Energy Group, Britain’s largest residential gas and electricity supplier, is plotting a £10bn demerger of its technology arm that would reinforce its status as one of the country’s most valuable private companies.
Sky News can exclusively reveal that Octopus Energy is close to hiring investment bankers to help formally separate Kraken Technologies from the rest of the group.
The demerger, which would be expected to take place in the next 12 months, would see Octopus Energy’s existing investors given shares in the newly independent Kraken business.
A minority stake in Kraken of up to 20% is expected to be sold to external shareholders in order to help validate the technology platform’s valuation, according to insiders.
One banking source said that Kraken could be valued at as much as $14bn (£10.25bn) in a forthcoming demerger.
Citi, Goldman Sachs, JP Morgan and Morgan Stanley are among the investment banks invited to pitch for the demerger mandate in recent weeks.
A deal will augment Octopus Energy chief executive Greg Jackson’s paper fortune, and underline his success at building a globally significant British-based company over the last decade.
Octopus Energy now has 7.5m retail customers in Britain, following its 2022 rescue of the collapsed energy supplier Bulb, and the subsequent acquisition of Shell’s home energy business.
In January, it announced that it had become the country’s biggest supplier – surpassing Centrica-owned British Gas – with a 24% market share.
It also has a further 2.5m customers outside the UK.
Kraken is an operating system licensed to other energy providers, water companies and telecoms suppliers. Pic: Octopus
Sources said a £10bn valuation of Kraken would now imply that the whole group, including the retail supply business, was worth in the region of £15bn or more.
That would be double its valuation of just over a year ago, when the company announced that it had secured new backing from funds Galvanize Climate Solutions and Lightrock.
Shortly before that, former US vice president Al Gore’s firm, Generation Investment Management, and the Canada Pension Plan Investment Board increased their stakes in Octopus Energy in a transaction valuing the company at $9bn (£7.2bn).
Kraken is an operating system which is licensed to other energy providers, water companies and telecoms suppliers.
It connects all parts of the energy system, including customer billing and the flexible management of renewable generation and energy devices such as heat pumps and electric vehicle batteries.
The business also unlocks smart grids which enable people to use more renewable energy when there is an abundant supply of it.
In the UK, its platform is licensed to Octopus Energy’s rivals EON and EDF Energy, as well as the water company Severn Trent and broadband provider Cuckoo.
Overseas, Kraken serves Origin Energy in Australia, Japan’s Tokyo Gas and Plentitude in countries including France and Greece.
Its biggest coup came recently, when it struck a deal with National Grid in the US to serve 6.5m customers in New York and Massachusetts.
Sources said other major licensing agreements in the US were expected to be struck in the coming months.
Kraken, which is chaired by Gavin Patterson, the former BT Group chief executive, is now contracted to more than 70m customer accounts globally – putting it easily on track to hit a target of 100m by 2027.
Earlier this year, Mr Jackson said that target now risked being seen as “embarrassingly unambitious”.
Last July, Kraken recruited Amir Orad, a former boss of NICE Actimize, a US-listed provider of enterprise software to global banks and Fortune 500 companies, as its first chief executive.
A demerger of Kraken will trigger speculation about an eventual public market listing of the business.
Its growth in the US, and the relative public market valuations of technology companies in New York and London, may put the UK at a disadvantage when Kraken eventually considers where to list.
One key advantage of demerging Kraken from the rest of Octopus Energy Group would be to remove the perception of a conflict of interest among potential customers of the technology platform.
A source said the unified corporate ownership of both businesses had acted as a deterrent to some energy suppliers.
Kraken has also diversified beyond the energy sector, and earlier this year joined a consortium which was exploring a takeover bid for stricken Thames Water.
This weekend, Octopus Energy declined to comment.
The boss of Ryanair has told Sky News the president of the European Commission should “quit” if she can’t stop disruption caused by repeated French air traffic control strikes.
Michael O’Leary, the group chief executive of Europe’s largest airline by passenger numbers, said in an interview with Business Live that Ursula von der Leyen had failed to get to grips, at an EU level, with interruption to overflights following several recent disputes in France.
The latest action began on Thursday and is due to conclude later today, forcing thousands of flights to be delayed and cancelled through French airspace closures.
Money latest: ‘Lifeblood of mortgage market’ enjoying lower rates
Mr O’Leary told presenter Darren McCaffrey that French domestic flights were given priority during ATC strikes and other nations, including Italy and Greece, had solved the problem through minimum service legislation.
He claimed that the vast majority of flights, cancelled over two days of action that began on Thursday, would have been able to operate under similar rules.
Mr O’Leary said of the EU’s role: “We continue to call on Ursula von der Leyen – why are you not protecting these overflights, why is the single market for air travel being disrupted by a tiny number of French air traffic controllers?
Ryanair has cancelled more than 400 flights over two days due to the action in France. File pic: PA
“All we get is a shrug of their shoulders and ‘there’s nothing we can do’. We point out, there is.”
He added: “We are calling on Ursula von der Leyen, who preaches about competitiveness and reforming Europe, if you’re not willing to protect or fix overflights then quit and let somebody more effective do the job.”
The strike is estimated, by the Airlines for Europe lobby group to have led to at least 1,500 cancelled flights, leaving 300,000 travellers unable to make their journeys.
Michael O’Leary believes the EU can take action on competition grounds. Pic: PA
Ryanair itself had axed more than 400 flights so far, Mr O’Leary said. Rival easyJet said on Thursday that it had cancelled 274 services over the two days.
The beginning of July marks the start of the European summer holiday season.
The French civil aviation agency DGAC had already told airlines to cancel 40% of flights covering the three main Paris airports on Friday ahead of the walkout – a dispute over staffing levels and equipment quality.
Mr O’Leary described those safety issues as “nonsense” and said twhile the controllers had a right to strike, they did not have the right to close the sky.
DGAC has warned of delays and further severe disruption heading into the weekend.
Many planes and crews will be out of position.
Mr O’Leary is not alone in expressing his frustration.
The French transport minister Philippe Tabarot has denounced the action and the reasons for it.
“The idea is to disturb as many people as possible,” he said in an interview with CNews.
Passengers are being advised that if your flight is cancelled, the airline must either give you a refund or book you on an alternative flight.
If you have booked a return flight and the outbound leg is cancelled, you can claim the full cost of the return ticket back from your airline.
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