A Soft-Touch Approach to Tax Compliance

20/11/2017

Sam Ashworth-Hayes

A Soft-Touch Approach to Tax Compliance

Tax collectors are used to less-than-enthusiastic compliance, but that doesn’t make non-payment any less infuriating. People who file their taxes, accept their bill, and then fail to pay on time or at all are surprisingly common, and getting them to pay their debts can be extremely challenging.

Professor Robert Metcalfe – cofounder of The Behaviouralist – knows this all too well; his work with HMRC on using behavioural economics to encourage tax compliance was cited in this years award of the Nobel prize in economics to Richard Thaler, and The Behaviouralist has run large-scale projects improving council tax collection.

Getting people to pay their debts without taking them to the courts can be as simple as adding a sentence to a letter. In Metcalfe’s experiment with HMRC, two broad messages were trialed over 100,000 taxpayers; 90% of people pay their tax on time, and tax pays for public services.

There is nothing shocking in these ideas. But people who were told, for instance, that “Nine out of ten 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” paid up an extra £2.4 million in the three weeks after receiving their first reminder.

In our work with the London Borough of Haringey, redesigning letters sent to households owing council tax pulled in an extra £110,000 over a control group receiving the usual letter. Over a full year, that would be more than £400,000 in extra income at a time when councils across the UK are cutting services for lack of funds.

These projects don’t just provide a model for collecting owed tax; designing field experiments with insights from behavioural economics can bring improvements in areas from airline fuel use to – well, almost anything you can think of. If you can help us complete this A-Z with a project involving zebra conservation please do bring it to our attention. If you don’t have such a project but want to find out more about our work or get in touch, click here.