Labour Supply Incentives and Recent Family Credit Reforms

Abstract

In July I995 a fI o per week increment to Family Credit was introduced for recipients working full time. This reform, announced in the November I994 Budget, was a response to concerns that Family Credit created labour market inflexibility among those eligible for the benefit. Specifically, it was designed to mitigate the effects of the high marginal withdrawal rates associated with the reduction of Family Credit as hours and gross income rise. The Secretary of State for Social Security stated,