Has Steve Hilton's blue-sky thinking finally come good?

It was dismissed as a gimmick, but the 'Nudge unit' beloved of the PM's ideas man is bearing fruit

Basic psychological tricks can make tax-dodgers behave honestly and potentially raise billions of pounds in extra revenue for the Treasury, a controversial new government unit claims to have proved for the first time.

Much derided when it was set up by David Cameron after the election, the Behavioural Insights Team, or "Nudge unit" as it has been dubbed, has now produced the first evidence that its ideas work in practice.

In results published today, they claim that by using behavioural science techniques to subtly change the processes, forms and language used by government departments when they communicate with the public they can have a remarkable effect on responses.

During eight different trials over the past few months, they say their methods have already saved the taxpayer several million pounds and increased positive compliance to government missives by up to 30 per cent. The nudge unit, part of the Cabinet Office, is run by the academic David Halpern, a former adviser to Tony Blair who reports directly to Jeremy Heywood, the Cabinet Secretary.

The unit is getting close political support not just from Mr Heywood but also Mr Cameron's director of strategy Steve Hilton, who sits on its steering group. It was borne out of the ideas of the Chicago-based academic Richard Thaler, who wrote a book on the theory which rapidly gained traction both in America where it was enthusiastically adopted by Barack Obama and in the UK where Mr Cameron became a proponent.

Its supporters say the nudge theory could eventually be used to affect everything from increasing the rate at which small businesses grow to promoting healthy eating in schools as well as increasing the tax take. In the recent trials, letters were sent to 140,000 self-assessment taxpayers.

One letter was a standard HMRC letter urging people to put their tax returns in on time. The other contained the statement that "nine out of 10 people in Britain pay their tax on time", and mentioned the fact that most people in the recipient's local area, or postcode, had already paid their tax. They found there was a 15 per cent increase in people paying their tax on time with the new localised letters. HMRC estimates that this effect, if rolled out across the country, would increase tax take by £160m over the six-week period of the trial.

In another trial, the unit experimented with sending out personalised text messages to people who owed money to the courts – with the individuals' names on them – in the week before bailiffs were due to be sent round.

It found that texts which were not personalised resulted in 23 per cent of people paying the fines while 33 per cent of those people who received the personalised text paid on time. If no text was sent only five per cent of people paid the fine.

In another study, which is still on-going, the group experimented with including photographs of untaxed vehicles in letters sent to their owners demanding payment.

They have also experimented with changing the letters sent out to people who claim a single person's discount on their council tax bills. By downplaying the savings made by the discount and changing the form of the letter to force recipients to actively confirm they were still living alone the number of people reapplying for the discount fell by six per cent.

Sources in the unit said they had been surprised by the extent of the behavioural change associated with the trials which were carried out using randomised control trials.

"In many circumstances changing people's behaviour is nicer than the alternative," they said. "If you scale up the trial we did on non-payment of fines you would see 150,000 less bailiff enforcement actions. That is surely a good thing not just for the taxpayer but the individual as well."

The unit is currently undertaking research projects in expanding e-commerce, energy efficiency and how it can help in deregulation. The unit is due for review in the summer but Cabinet Office sources suggest that it is certain to be given an extended mandate and might even be increased in size.

Mind games: A history of nudge theory

The man who elevated "nudge" into a political catchphrase was the Chicago-based academic Richard Thaler, who visited the UK in 2008 to promote his theory and met David Cameron.

Mr Thaler made such an impression that for a time he acted as unpaid adviser to the Tory leader. Nudge theory is an attempt to resolve a classic Conservative dilemma: since they believe in a small state and low taxation, should the Conservatives just leave us to our bad habits, or use the levers of state to try to improve our behaviour?

In 2008, Thaler and Cass Sunstein wrote a book called Nudge: Improving Decisions about Health, Wealth, and Happiness in which they claimed that instead of ordering people around or leaving them to behave in self-defeating ways, the state can nudge them into behaving sensibly.

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