It is well established that behavioural insights can help individuals. Think of workers being defaulted into pensions, GPs reducing the amount of antibiotics that they prescribe and people nudged towards the gym – all as a result of easy, attractive, timely and social prompts.
With our partners, we are now building a much needed evidence base on the use of nudges aimed at groups of people, or more specifically, businesses. We believe the success of behavioural insights for individuals can be replicated to help businesses achieve their goals. If you read that sentence and thought businesses should be left to their own devices, spare a moment for the more than 20% of UK businesses who still use a fax machine.
As part of this work, we collaborated with Companies House to test different ways of communicating with businesses. Our aim was to encourage businesses to adopt a new technology and improve their management practices. In this case, that meant increasing the use of digital services (instead of paper) to file annual accounts alongside boosting the number of businesses that file their accounts on time.
Companies House is the registry for UK limited companies. It stores details on more than four million companies and 600,000 new companies are added each year. It manages some 30,000 customer transactions every day. Making these transactions digital and efficient is critical to providing an effective service.
Every year companies have to file their accounts with Companies House. 80% of companies do so digitally, but 20% continue to use paper methods – costing time and money for all those involved.
To improve uptake of digital filing, we tested three new versions of a reminder letter sent to companies 35 to 42 days before their annual accounts are due.
All of the new letters (A-C) simplified information and gave a salient call to action to file digitally. In addition, each new letter tested a different behavioural message:
- Letter A (social norm): ‘8 out of 10 companies file online’
- Letter B (dynamic social norm): ‘Over the past 5 years, online filing has increased from 50% to 80%. Consider filing online this year.’
- Letter C (messenger effect): ‘“I file my accounts online every year. It was quick and easy. I would recommend it for everyone.” Louise – Company Director’
- Letter D (control letter): the original reminder letter
The figure below illustrates Letter A.
During the trial, companies were sent one of the four letters.
Our analysis revealed that the new letters did not make companies more likely to file digitally.
However, we did find that Letter A (testing a social norm message) and Letter C (testing a messenger effect) improved compliance, equivalent to a 2.4% reduction in the probability of filing late or not at all. We estimate that if all eligible companies on the Companies House register received Letter A (the best performing letter), instead of the control letter, an additional 5,927 companies would file on time – helping them to avoid a late filing penalty and saving Companies House the cost of sending follow up compliance letters.
We also used data science techniques to find out what characteristics predict whether a company files by paper.
Unsurprisingly, the biggest factor that predicts the method a company chooses to submit its accounts, is how they did so last year. Additionally companies are more likely to file by paper in their first year of trading. This may be because they are less likely to have fully established processes or are more likely to use an accountant for their first set of accounts. Companies older than 10 years are also more likely to file by paper, suggesting it may be hard to teach an old company new tricks.
Although our new letters did not increase uptake of digital filing methods, the trial did reveal a number of new insights:
- Letters that simplify information, make key information salient and include behavioural messages (in particular using social norms) can produce real, albeit small, changes to company behaviour;
- There may be timely moments, such as incorporation, when firms need additional assistance to achieve leading practice (such as digital filing) from their first year of operation;
- Entrenched behaviours, such as filing by paper, are difficult to change through simple changes to existing letters. More targeted, frequent and personalised approaches are likely required to change the behaviour.
BIT’s collaboration with Companies House revealed real promise for the use of nudges to prompt businesses to adopt new management practices (such as filing on time). We are taking forward these ideas in our Business Basics programme where we are evaluating how different messages can encourage the uptake of new technologies and evidence-based practices. Companies House, meanwhile, is getting ready to run further trials in order to improve the experience of its customers. Overall, lessons from our trial indicate why the use of behavioural insights must become a standard part of the business and economic policymakers toolset. We’re looking forward to sharing more with you on this topic soon.