Digital psychology: why the paperless tax disc has failed to deliver benefits

I’m a huge fan of online services (or “digital”, to use the term beloved of marketing departments everywhere). I make a substantial part of my living from evangelising, designing and helping to deliver them. But sometimes it makes little economic sense to do digital for the sake of digital, as the government has found out today.

Here’s the then director of Government Digital Services (GDS), writing in December 2014:

… work goes hand-in-hand with deep business transformation. With the abolition of the paper tax disc, the DVLA have gone from being a department that processes millions of pieces of paper each year to becoming one of our digital flagships.

And here’s the apparent result of that transformation, as reported by the BBC today:

The number of vehicles without road tax – Vehicle Excise Duty (VED) – doubled to 560,000 this summer according to the Department for Transport’s survey, months after the paper tax disc was abolished in October 2014.

 

The Department for Transport admits these changes probably caused the increase in untaxed vehicles.

 

The loss in revenue for the government is “significant”, he [David Bizley of the RAC] said, having risen from £35m in 2013 to an estimated £80m now “and, it has to be pointed out, far exceeds the forecast £10m efficiency saving”.

It’s right that online services should be used to save money and improve convenience, but not at the cost of the taxpayer (or consumer). DVLA had been delivering both of these aspects successfully by allowing people to pay for the tax disc online a long time before this particular transformation.

Why did it go wrong? My analysis is that the impact of displaying a paper tax disc was hugely important psychologically – far more so than the digital transformation evangelists ever acknowledged. The removal of the behavioural “nudge” that the act of displaying the tax disc created meant that the DVLA were gambling on the benefits of removing paper outweighing the costs of removing the nudge.

Instead, it would appear that an annually recurring £35m cost to the taxpayer has resulted directly from this transformation (assuming that the efficiency saving referred to in the BBC article was an annual one resulting largely from eliminating printing and postal costs).

The lesson? Always ensure that your transformation initiatives have a robust business case behind them and that they consider the psychological impact of change as a variable that can materially alter your benefits forecast.

I’m not sure what the DVLA will be able to do to resolve this problem now, as I suspect that they can’t simply roll back this change without incurring even greater costs. To me, it underlines that imposing behavioural changes of this kind on your customers can never be viewed as a “Beta”.

I hope that this experience is giving HMRC food for thought as they strive to become a “digital tax titan” over the next few years. For them to be successful, the psychological aspects of digital service design must be front and centre in their thinking, followed closely by a robust business case analysis.

Otherwise, we may all be even poorer at the end of austerity than we thought we were going to be.