I think frugledoc it depends on how much you want to spend and how 'essential' having a more racy phone is.
Certainly you have an option with photos as you could port them to another cloud data provider - Google, OneDrive, Dropbox etc., although you will lose the ability to instantly access them from the iPhone. It's your call on if that's worth a 79p cost saving per month or not. That's certainly in the cost bracket where I personally consider it a marginal call for ease of use vs. cost saving.
I've travelled down the path of buying the phone outright recently - I bought an iPhone 6 two years ago and I've made a good cost saving over purchasing it on a contract. I actually intend to run it for another 1-2 years, then sell the handset on EBay and purchase another (newish) iPhone. It's more cost effective, but not as effective as buying an Android phone which is cheaper. The difference between the two is that Apple tend to support their phones with OS upgrades for multiple years, whereas Android phones I have found from experience typically need replacing after 2 years. This at least partly explains the higher resale value of Apple phones for me. I prefer Apple for this reason as intend to hold it for 3-4 years, rather than churning tech.
The next operating system will be iOS 11 which will land in a couple of months. This is the 'new OS' for the iPhone 8, but the support will stretch back to the iPhone 5S. My personal view is that it's time to replace around the time when your iPhone no longer supports the latest OS, but your call.
Apple is higher quality, but cannot compete with a cheap Android phone in terms of cost effectiveness.
I personally think you could either replace the batteries and look to run for another 12 months or replace, but I'd be tempted to push for another 12 months and then look to replace, given the outright cost for a new iPhone will be in the region of £700/each. The resale value of the old iPhone currently is around £50-70 each.