Instead of opting in, millionaires should have to opt out of paying extra tax, argues James Kyle. Participation rises sharply when contribution is the default position rather than requiring active enrolment, he writes.
Behavioural insights for tax policy
The finding that three-quarters of UK millionaires say they would be willing to pay more tax is politically significant at a time when Labour faces growing pressure both to fund public services and to defend progressive policies against rising anti-tax populism. However, the crucial question is not what people say in surveys, but how policy converts stated willingness into actual revenue.
The Treasury’s standard response is that wealthy individuals can already make voluntary payments to HMRC. Yet the sums raised remain negligible. This is entirely predictable, because behavioural research repeatedly shows that opt-in systems produce dramatically lower participation than opt-out systems – the core principle behind so-called nudge theory. Successive UK governments have already relied heavily on the latter approach in areas ranging from pension auto-enrolment to organ donation frameworks.
A proposal for an opt-out solidarity tax surcharge
I once suggested to the Treasury via my MP an “opt-out solidarity tax surcharge” for those above the highest income or wealth thresholds. Not entirely unexpectedly, I received the same response about existing voluntary payments. However, as far as I could tell, the key behavioural point was missed: participation rises sharply when contribution is the default position rather than requiring active enrolment.
Critics may dislike the fact that participation would remain technically voluntary. However, existing taxes would remain fully compulsory and progressive, while the tax surcharge would apply automatically unless individuals confidentially chose to opt out in their tax returns. The relevant comparison is not between this and an imaginary world of perfect tax compliance. It is between securing additional contributions from many wealthy individuals, or securing nothing at all while increasing incentives for avoidance, relocation and political backlash.
I believe that in politically challenging times, ideas that combine behavioural realism with fiscal pragmatism deserve closer consideration.
