• Behavioural science could be used to save billions of pounds in tax
  • Trial shows using social norm bias would persuade people to pay
  • Tax avoidance and evasion costs UK £34 billion a year
  • Nudges playing on people's need to belong shown to work

Billions of pounds extra in tax could be raised for HM Revenue & Customs by using messaging telling people who have not paid their tax that they are in the minority. 

HM Revenue & Customs estimates that illegal tax evasion and legal tax avoidance together cost the UK Government about £34 billion a year, but a study has found using ‘nudges’ informed by behavioural science research can help reduce this. 

According to the study, using descriptive norms - ie describing what other people do, such as “nine out of 10 people in the UK pay their tax on time” - taps into our social norm bias and significantly increases tax payment rates.

Researchers estimate that £4.9 million of tax repayment was accelerated during a 23-day sample period due to the use of the messages.

Related course: Behavioural Science in Practice

The results suggest that identifying non-tax-payers’ behaviour as a minority activity can be particularly effective in encouraging people to pay their tax. Take for example the phrase: “Nine out of 10 people in the UK pay their tax on time. You are currently in the very small minority of people who have not paid us yet.”

This was included in tax reminder letters sent to thousands of people in a trial involving 200,000 UK taxpayers, and was found to be the most effective of a host of messages informed by behavioural science research. 

According to Ivo Vlaev, co-author of the study and Professor of Behavioural Science Group, the results stem from an evolutionary human desire to belong. 

“Framing people’s actions as minority behaviour triggers a subconscious feeling of being an outsider, which creates a fear that you don’t belong anymore,” he said. “A motivation emerges to affiliate with the majority group, which in this case is people who pay their taxes.”

How can we stop tax avoidance and evasion?  

The study included two experiments and demonstrated how the effects of behavioural science can influence the timing of tax payments and can accelerate tax repayment. 

The study also found that increasing the salience of a penalty is effective in getting people to pay tax. This can include using details of the added interest cost of non-payment and the payment vehicles that a person could use to pay their tax. The research found that in these instances, there was a 3.2 to 3.9 per cent increase in payment rates.  

Overall, the researchers estimate that more than £9 million of tax payment was accelerated during the 23-day sample period due to these messages.  

The study also found that the effect was scalable: replicating the messages does not eradicate the effect. Significantly, the messages can be implemented at little or no cost to the organisations which use them.  

Professor Vlaev, who has been working with public and private sector organisations to help them use behavioural science to improve the effectiveness of their debt collection policies, said: “There is a huge national need to increase tax collections as billions of pounds have not been collected by local and central Government authorities in income and council tax, fines and rent. 

Related course: Executive MBA 

“There is also a need for private companies such as debt collection agencies and banks to increase their collection of unpaid debt.”  

The paper The behavioralist as tax collector: Using natural field experiments to enhance tax compliance, was co-authored by Professor Vlaev, John A. List and Robert D. Metcalfe, of the University of Chicago, and Michael Hallsworth, of the Behavioural Insights Team at the UK Cabinet Office.

Ivo Vlaev teaches Behavioural Sciences for Managers on the Executive MBA.