This paper presents an approach for incorporating labour supply, work experience investments and education decisions into the analysis of the tax and transfer system. It examines the extent by which dynamic longer-run issues associated with experience and education change our view of tax policy reform for low income workers. It also investigates the insurance value of redistributive policies. Using a long household panel for the UK we show that the incentive effects of taxes and transfers for labour supply and human capital investments are empirically important. Labour supply elasticities are found to vary in key ways by education group, family type and age. Human capital investments in the form of work experience are found to matter but only for full-time employment experience, and especially for those with more than basic formal education. These differential work experience effects by full-time and part-time work are shown to provide a coherent explanation of the part-time penalty in female wages. The results also suggest a small but important impact on education choices.