Revealed: How the taxman uses mind games and behavioural psychologists to get households to cough up Strategy outlined by chief secretary to the Treasury Danny Alexander People are swayed by what they think those around them do, HMRC finds HMRC trials letters telling tax dodgers most in their area have paid already
By RACHEL RICKARD STRAUS FOR THISISMONEY.CO.UK
The taxman is using behavioural psychologists to design its letters to get households to pay up straight away, it has been revealed. HMRC has subtly changed the wording of hundreds of thousands of reminder letters to make people feel guilty if they don’t pay up. It has been working with the Government’s Behavioural Insights Team to work out what to include and omit from letters to get the best and fastest response from taxpayers.
HMRC is rewording its letters to use language designed to encourage more households to pay up The strategy was highlighted by chief secretary to the Treasury Danny Alexander, who told the Lib Dem party conference at the weekend: ‘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.’
Keeping up with the tax-paying Joneses
The team said that traditionally attempts to combat fraud have made a number of questionable assumptions about human behaviour.
For example, it is often presumed that individuals rationally weigh up whether or not to commit fraud by working out how much they expect to gain versus the likelihood they will be caught and the size of the punishment if they are.
But in fact, people tend to be more swayed by what they think everyone else around them are doing, it found.
People don’t commit fraud because they have a sense of moral obligation, which they believed is shared by those around them.
HMRC has trialled incorporating this idea into its letters and has noticed a surge in the number of positive responses and revenues collected.
When it started to mention in letters that nine in ten people in an area had already paid their tax, HMRC saw a ‘substantial increase’ in tax repayments compared to the control group.
It sent three different letters out to a group of 140,000 taxpayers. Some letters mentioned that ‘nine in ten people in Britain pay their tax on time’, others mentioned that most people in the recipient’s local area or postcode had already paid, and some did not mention either fact.
The letters that mentioned that most people pay on time saw a 15 percentage point increase in responses.
HMRCbestimated that this effect, if rolled out across the country, could lead to taxpayers coughing up around £160million of debts over a six-week trial period. This would free up collector resources capable of generating £30million of extra revenue annually, it predicted.
Contrasting recipients’ behaviour with the norm proved even more effective in another trial.
When HMRC sent letters with the phrase ‘you are one of the few people who have not paid yet’ after the phrase ‘nine out of ten people pay their tax on time’ the payment rate rose from 36.8 per cent to 40.7 per cent.
However the behavioural team noted that it is only a good idea to flag up what everyone else is doing when it is generally positive.
‘Campaigns sometimes inadvertently give the impression that problematic behaviour is widespread,’ it warned in a report. ‘For example, by displaying notices in doctor’s surgeries explaining how many people missed their appointments in the previous year.’
HMRC and the Cabinet Office have been trialling the use of psychology in tax collection strategies for some time. Similar studies also found that people are much less likely to lie to someone else for personal financial gain if the impact on the other person is high.
Since people who commit fraud against public bodies are unlikely to understand the impact this could have on others, HMRC has been looking into whether it could cut fraud if it highlighted the impact on a particular public service.
For example, it could highlight that those who do not pay council tax are having a direct impact on street cleaning services
It added that some people may be more influenced by the thought of items or property being taken away as punishment rather than a monetary fine. The DVLA has taken on this approach by publicising the fact that it can crush untaxed cars.
‘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,’ the report from 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.’