Headlines: February 7th, 2012

Trials across the country are showing that fraud against public sector bodies and collection of debts can be influenced without the use of law. People can be encouraged, or nudged, to conform. Not only is nudging effective, it comes at a low cost.

The trials are organized by the Behavioural Insights Team in the Cabinet Office which has a remit to help local authorities, charities, government and private sector organisations to develop responses that encourage healthier behaviours. Some £21 billion is lost to fraud in the public sector while £7–8 billion is lost on overdue debt.

The Team draws on insights from behavioural science and behavioural economics which encourage behavioural change without resorting to legislation or costly programmes.

The trials are showing the effectiveness of the nudge approach. In a debt recovery trial £160m of tax debts were advanced over a 6 week period. Another trial brought in over £1 million from doctors in additional yield to HM Revenue and Customs, while a further trial saved Manchester City Council up to £240,000 in council tax discounts.

Overall, these trials showed effect sizes of up to 30 percentage points, underlining the key role that behavioural insights can play in tackling fraud, and debt. 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.

Traditional attempts to combat fraud and debt have made a number of assumptions about human behaviour. They have tended to assume that individuals rationally weigh up the personal costs and benefits of committing fraud by calculating the amount that they expect to gain, the probability of being caught and the magnitude of the punishment. But studies show that people can be encouraged to do the right thing by making the process easy, highlighting key messages or emphasising what most people are already doing.

Research also indicates that it is important to look at the system as a whole from an end user’s perspective in order to identify key points where people may be tempted to be dishonest. It is then possible to tailor interventions to that specific context in order to encourage honesty and compliance.

The Behavioural Insights Team drew on an experiment in Minnesota where people were told that their perception that many other people did not pay their taxes was incorrect. This increased rate of voluntary tax compliance. The Team have collaborated with HMRC and taxpayers in a locality were told that 9 out of 10 people in the area had already paid their tax. This resulted in substantial increases in tax repayments compared with the control group.