Lowri Williams is struggling to cover his basic expenses. Earning a low income with very little support, she says she feels like she is “living hand to mouth” and barely getting by.

She is part of a large group of people living in low-income households who find themselves in a precarious situation, earning too little to support themselves comfortably, but too much to qualify for significant financial assistance.

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.

Higher tax bills for the lowest paid

Lowri’s salary is not high enough to pay taxes. But there is a larger group of low-income earners who face a heavy tax burden.

Sky News analysis found that over the past three years, workers in the poorest 25% of earners have effectively suffered a 60% tax rise.

This is due to frost personal allowancesI introduced in 2021 and which should end in 2028. For each year of freeze, employees actually see their tax rate increase in 2028. real termsI because a higher proportion of their income becomes taxable.

Labor could extend its budget freeze this week. If the chancellor implements this plan, around 400,000 people currently exempt will find themselves paying income tax, and many current taxpayers will pay higher rates.

On top of this, low and middle income households are seeing significant stagnation in their income growth, according to analysis of Department for Work and Pensions (DWP) data by the Resolution Foundation.

The finding is part of a report coming in November, obtained by Sky News, which will delve deeper into the financial pressures these households are facing.

Between the mid-1990s and early 2000s, low- and middle-income households saw their income increase by nearly 50%. But over the past decade, that growth has slowed significantly to just 11 percent.

Fluctuating earnings and reduction of benefits

The government is also reportedly considering restricting sickness benefits, a move that could make the problem worse.

“Economic vulnerability and insecurity are particularly high among people with poor health or disabilities,” said Alfie Stirling, director of research 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 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 working and unemployed households.

Around 2.5 million working people benefit from this support, but some, like Lowri, a part-time charity worker, sometimes do not benefit due to fluctuating monthly income.

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 situation.

Lowri, who is affected by the decreasing rate, explained: “If you win beyond the limit, you lose immediately. Not only do you lose Universal Credit, but also your council tax benefit, which is an extra £150 a month.

“So even if you make £50 more, you could end up losing £100.”

“Every penny you make just goes to pay your bills,” she said.

Find ways to save

Below are Lowri’s household expenses for some essential bills.

Even if she can benefit from UC, she is entitled to social rates, which constitute a reduced package for household bills, which could help her save.

This could represent a saving of almost £70 on Lowri’s mobile and broadband budget, according to analysis from Nous, an AI-powered bill tracker.

With the implementation of social tariffs, its water bill could be reduced by half.

The national living wage

While Lowri’s income means she doesn’t pay tax, people on the National Living Wage (NLW), £11.44 an hour (£22,308 a year), who earn more than they are strongly affected by the fiscal and social decisions taken by the conservative government. , which Labor would propose to extend.

In the March budget, the NLW increased by 10%.

The Chancellor could announce a further increase in the NLW during this week’s Budget, which appears to be good news.

But Lalitha Try, economist at the Resolution Foundation, says: “Our research shows that the introduction and increase of the minimum wage has significantly improved the living standards of low-income families over the last 25 years.

“But it is important to recognize that there are limits to what this can achieve. For workers on Universal Credit, more than half of wage gains will be clawed back through a reduction in benefit entitlements.

And the minimum wage cannot help those who may earn more than the legal minimum but face reduced hours or high housing costs. Other policies are needed to resolve these challenges. »

Losing access to support such as Universal Credit could also mean people will no longer be able to benefit from benefits such as welfare rates and free school meals.

In addition, the freezing of personal benefit thresholds, which heavily affects the bottom 25% of earners in the UK, has also had a significant impact on those receiving NLW.

The amount of tax that someone working full time on a decent wage will pay each year 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 who earns just over £22,000 a year.

This means that their effective tax rate has almost doubled, from 4.4% to 8.7%, in five years.

These are just a few examples of how an increase in NLW means they have less money in their pockets.

Two salaries and still struggling

It’s the same for people considering what is supposed 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 threshold (MIS).

This is the amount that the Joseph Rowntree Foundation defines as necessary for an acceptable standard of living.

This goes beyond just food, clothing and shelter; this includes the ability to participate in society, such as the ability to socialize and have 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 at a primary school and Chris looks after the fleet of vehicles used by his company.

The Matthewman household income is below the minimum income standard (MIS) for a family of this size, just over £80,000 in total.

After tax, their combined household income is around £4,000 a month. Much of this is spent on energy bills and council taxes, not to mention other essentials.

Chris is clearly worried about how to keep the family afloat. When I visited him, he repeatedly showed me his detailed spreadsheet that he uses to meticulously track his family’s expenses.

Chris says: “It’s frustrating. We have to be willing to survive paycheck to paycheck, month to month. »

And Tracey had this message to Rachel Reeves, the chancellor, ahead of Labor’s budget: “They need to remember that there are people living in this country who don’t get any benefits and are still struggling.”

“We’re part of a demographic that ends up paying more – more national insurance, more tax. We keep getting tougher, but we don’t get any benefits. It’s difficult.”

Additional reports: Daniel Dunford, Senior Data Journalist

THE Data and forensics is a multi-purpose unit dedicated to delivering transparent journalism from Sky News. We gather, 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 better explain the world while showing how our journalism is done.

(c) Sky News 2024: How the budget could make the situation worse for millions of workers with extreme financial resources.