Using behavioural insights to recover Housing Benefit overpayments in Croydon

In 2016-2017, the Behavioural Insights Team (BIT) worked with the London Borough of Croydon and London Councils to increase the number of tenants repaying overpaid Housing Benefit as well as the overall amount repaid. By making behaviourally informed changes to the reminder letters sent by the council, the proportion of tenants repaying increased by 14 per cent and the amount repaid by 25 per cent.

Efficiency and income generation

The challenge

Every year, hundreds of millions of pounds of Housing Benefit (HB) is overpaid, with tenants across England now owing £2 billion in outstanding debt. Overpayment of Housing Benefit presents several challenges from a behavioural perspective. First, recipients of the benefits are responsible for alerting the council when their circumstances change in order to avoid overpayment. This is difficult because circumstances can change frequently; eligibility depends on earnings, which can vary from week to week in some industries. It is also likely that overpaid recipients find it psychologically painful to repay money once it has been paid into their account at which point they consider it theirs.

The solution

Tenants who have been overpaid HB receive an initial letter and then two reminders if a payment is not made. After this enforcement action is taken. Three letters were rewritten to incorporate a range of behavioural insights:

  • All of the letters were simplified, personalised and made more action focused.
  • In the first letter we aimed to make repayment as easy as possible.
  • In the second we used a diagram to make the process clearer and to make the potential loss of not paying more salient. We also set a default payment method and used a social norm to encourage people to use the default:

For debts below £300 our message was: “Most people (70 per cent) with a debt like yours choose to pay it off in one go.”  

For debts above £300 our message was: “Most people (80 per cent) with a debt like yours choose to pay by monthly instalments as part of a Payment Plan.”

  • In the final letter we framed non-repayment as an active choice (also made salient by a flow diagram) rather than an oversight (“Previously, we treated your lack of response as an oversight. Now, if you do not contact us, we will consider this to be your active choice.”)

The impact

The new behaviourally informed cycle of letters was tested against the existing letters sent by the council (the ‘Control’) using a randomised controlled trial. The new cycle of letters increased repayment rates within 45 days by 14 per cent. They also increased the amount repaid per invoice sent by 25 per cent. At the average amount repaid this equates to a £90 difference (£360 for the council’s current letters and £450 for our new letters).

We also found robust evidence that the social norms we used for default payment methods successfully nudged ‘low debt’ customers to repay in one go (28 per cent more likely to repay in one go) and ‘high debt’ customers to set up a payment plan (18 per cent more likely to use a plan). These results were not quite as statistically robust as our main findings (for the technically-minded reader, they were significant at the 10 per cent level of significance rather than the more conventional 5 per cent). However, since we observe improvements in several areas (e.g. the number of invoices paid and the amount paid) we are confident these shifts were likely to be due to our changes.

The new letters brought forward £56,000 during the trial period. If rolled out across Croydon, this would amount to an estimated £212,000 per year along with £4,500 less spent on debt recovery.

How is the new approach being sustained?

The Behavioural Change Hub within Croydon Council is supporting the service to roll out the new behavioural letters and consider additional opportunities to apply behavioural insights.

Lessons learned

  1. Social norms and active choice-type can increase payment
  2. Setting a default payment method is important. Letters with many repayment options can end up being long and cluttered. We suggest councils set a default payment option. Other ways to pay can still be included on the back of the letter.
  3. Target customer groups by the size of their debt. One-size-fits-all letters can feel generic, or even inappropriate, if customers have very different sized debts. Tailoring letters, for example by varying the suggested method of repayment depending on the size of the debt, can increase repayment.
  4. Anchor customers with high total debt on a lower figure. Customers may be put off repaying when confronted with a large total debt. Referring to a smaller sum (e.g. their monthly instalments) can make repayment seem more feasible.   
  5. Anchor customers with a specific, higher monthly instalment. Mentioning how much people typically choose to repay each month (a social norm) can encourage people to choose similar instalment amounts.