Lightening Connector may be the reason for the budget iPhone
6 months back , there were four devices which had 30 pin connector which were still on sale.
iPad 2 , iPod Touch 4th gen , iPhone 4 and iPhone 4S.
Apple slowly killed off iPod touch 4th gen and launched 5th gen iPod Touch without a backside camera.
iPad 2 will go out of sale when the next iPad arrives.Same will happen to iPhone 4.Finally , that leaves iPhone 4S which will take iPhone 4's spot.
4S will be the only device using 30 pin connector.
It makes sense that a budget iPhone launches and replaces 4S.
That brings the whole iOS line-up into the usage of lightening connector.
I think budget iPhone is to replace 4S.
Like the comments pointed out , Screen Size may be the main reason for this.Lighning connector also plays a role but screen may be the main factor.
Just like iPad 3 , production will be stopped for 4S but iOS 8.x.x will be given to 4S I think.