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British Taxman Conducts Psychological Experiments on How To 'Nudge' Public Into Paying Up On Time

British Taxman Conducts Psychological Experiments on How To 'Nudge' Public Into Paying Up On Time

Her Majesty’s Revenue and Customs, the department tasked with collecting taxes from the British public, has been undertaking psychological experiments unbeknownst to the British people, in order to work out how best to elicit the tax payments as quickly as possible. Amazingly, Liberal Democrat Treasury Minister Danny Alexander has brazenly boasted about the scheme at the Liberal Democrat Conference in Glasgow this week, telling delegates “We are using psychologists and behavioural economists in HMRC to get the money quickly. Tax dodgers beware – we know where you live, we know how much you owe, and now we know how you think. Your behaviour is unacceptable, and we are coming for our money.”

HMRC has been working with the Government’s Behavioural Insights Team, the Daily Mail has reported, to find out how best to word letters in order to get the best response from taxpayers. They discovered that, far from making rational decisions over whether or not to commit fraud by weighing up the money gained against the likelihood of getting caught, people have a tendancy to be swayed by what those around them are doing.

This insight prompted the department to send out three different versions of a letter requesting payment to 140,000 taxpayers. A third of the letters informed the recipient that “nine in ten people in Britain pay their tax on time”; another third informed recipients that most people in their area had already paid; and the final third, which acted as a control group, made no mention of others’ behaviour.

The first letter resulted in a 15 percent increase in responses, a result that was considered significant by the department. It has estimated that, if rolled out countrywide, £160million ($257million) in unpaid taxes could be secured within a six week period, freeing up tax collectors to collect a further £30million extra annually.

In a second trial, HMRC added the text “you are one of the few people who have not paid yet” after the line “nine out of ten people pay their tax on time”, collection rates again rose from 36.8 percent to 40.7 percent paying within the deadline.

“Overall, these trials showed effect sizes of up to 30 percentage points, underlining the key role that behavioural insights can play in tackling fraud, error and debt,” a report by the Behavioural Insights Team at the Cabinet Office said.

“They demonstrate that even relatively minor changes to processes, forms and language can have a significant, positive impact on behaviour, and can often save the public time and money too.

“We are confident that results like these could be achieved across a range of areas by applying the insights set out in this document. Indeed, if trialled on a national scale, we expect that these interventions will save hundreds of millions of pounds.”

This is not the first physiological study undertaken by the department. Previous studies have found that people are less likely to commit fraud if they are made aware of the impact their actions have on others, and plan to use this information through campaigns which highlight the impact of lost tax revenue on front line public services.

Other departments, such as the Driver and Vehicle Licensing Agency (DVLA) have found that threats to personal property work better than threats of a fine: it now advertises the fact that it has the power to crush cars if they don’t display a valid tax disk.  

Although the department has been keenly supported by the Liberal Democrats, it was set up by David Cameron when he first became Prime Minister in 2010. He is known to be a big fan of ‘nudge theory’, in which people are pointed towards making the ‘right’ decisions. The concept is sometimes referred to as ‘libertarian paternalism’, because, although nudgers want to influence people’s behaviour, they don’t want to use legislation and compulsion to do so.

The theory was first codified in a book called Nudge: Improving Decisions About Health, Wealth and Happiness by Chicago Business School economist Richard Thaler and Chicago Law School professor Cass Sunstein. Cameron is reported to have put the book on his shadow ministers’ required reading list whilst still in opposition.


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