'Nudge Unit' calls for changes to business banking

Whitehall gurus, who subtly influence the way we live, believe they know how to get the economy moving again

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Indy Politics

High street banks are to create new accounts that automatically deduct income tax as part of government attempts to "nudge" entrepreneurs into taking on staff.

It is the latest idea from the Behavioural Insight Team charged with changing the way the Government influences our lives – almost without us noticing. Talks are well advanced with at least two major bank chains about creating an "easy-PAYE" account, which could form the centrepiece of growth plans in next month's Budget.

From getting more of us to donate our organs and insulate our lofts to catching tax dodgers and illegal drivers, the team of eight policymakers in the so-called "Nudge Unit" combine economics with psychology – and a smattering of common sense – to alter subtly the way we live.

Once viewed as a "nutty indulgence" at the heart of David Cameron's government, the unit now hopes to "infect" every part of Whitehall with its radical thinking. "It is not just something that is of amusement value in laboratories in California," said a source. Toughening up the language in tax letters, for example, has dramatically increased income for HM Revenue and Customs.

David Halpern, a former policy chief for Tony Blair, heads the unit and hit the headlines last week when he suggested the elderly should be encouraged to return to work and move into smaller homes to prevent loneliness. Now he is turning his attention to stimulating growth, and how to encourage Britain's 3.6 million sole traders to start hiring by reducing the "friction costs" – or hassle, as it is better known – by involving banks.

It is understood a company would pay an employee's gross salary into one of the special bank accounts, which would then deduct income tax and national insurance before paying the net salary. A source said: "The classic Treasury view of these things is very macro; that it doesn't matter about the micro. But for many small businesses, small friction costs, in terms of time and money, are actually quite consequential."

Officials believe the measure will prove significantly more successful than George Osborne's much-hyped National Insurance holiday for new firms to hire 10 staff, which created only 1,000 jobs. The unit is also examining ways to allow firms other than banks to lend to companies as part of the Treasury's credit easing strategy. "We think there are a number of players who might not go to a conventional bank but others have already made a credit judgement about them," a source said. For example, a builder may have an account at their local supplier after making a decision about their creditworthiness.

How we are nudged

Energy A plan to get whole streets to club together to get discounts on loft insulation failed because it proved impossible to get people to talk to neighbours. Instead, loft insulation schemes are to be rebranded "loft clearance", with companies emptying attics then quietly laying some lagging.

Internet Search engines to be asked to change global default settings so UK firms can be found more easily.

Tax People who pay their tax early could be entered into a lottery, with prizes funded by fines on late-payers.

Motoring Letters accusing motorists of driving without insurance will photos of the vehicle on the road.

Organ donation Forcing online driving licence applicants to make a "required choice" about donating.