Oliver Letwin said there was no hard evidence the 'nudge unit', which costs £520,000 a year, would succeed. Photograph: Matt Cardy/Getty ImagesOliver Letwin, the minister for government policy, has admitted that a £500,000 "nudge unit" formed to apply the behavioural economics theory that people's habits can be improved without regulation is experimental and there is no concrete evidence that it will work.

Letwin told a committee of peers in the House of Lords that the unit, which is supposed to influence Whitehall policymaking, is not guaranteed to work, but that it was low cost with "almost zero risk" involved. The Cabinet Office, in which the group is based, confirmed that the nudge unit has seven government employees and costs £520,000 a year.

The unit, known formally as the Behavioural Insight Team, is run by David Halpern, a former adviser in Tony Blair's strategy unit who is paid £100,000 a year. Advice is being given by Richard Thaler, the Chicago professor generally recognised as popularising nudge theory – the idea that governments can design environments that make it easier for people to choose what is best for themselves and society.

Letwin told the Lords science committee, which is conducting an inquiry into behaviour change: "It is of course open to question whether any of this will have any effect whatsoever. I don't want to pretend that behavioural science is a sufficiently developed science to give us complete confidence or even sort of 95% confidence that any given technique will produce given results. It isn't that way. As a matter of fact the science of investigating regulation isn't sufficiently developed to give you that either. But I think it is extremely clear that it is pretty cost-free to do these things, pretty straight forward to do them so that if they don't produce any result we won't have lost much."

The group is overseen by a steering group chaired by Gus O'Donnell, the cabinet secretary. Halpern has a deputy director and five junior staff. The Cabinet Office said the £520,000 covered payroll, fixed overheads (desks, telephones, IT) and all other costs.

The disclosure follows a critical National Audit Office report on regulation that said the nudge unit had failed to convince a single Whitehall department to make use of its ideas so far. "The Cabinet Office told us that it has not been consulted by departments to date about possible alternatives to regulation at the assessment stage," it said.

Letwin told the committee that the team were working on five key projects: how to improve organ donations, stopping smoking, car labelling to make energy efficiency more conspicuous, food hygiene and a charitable project to improve donations. The unit is looking at a gift scheme in which consumers are offered the chance to donate their change to charity to make casual giving easier.

He said the common features of the schemes were that they involved "prompted choice" rather than regulating.

Last month Francis Maude, the Cabinet Office minister who works closely with Letwin, argued that government should be allowed to experiment and fail more than it does in order to attempt more ambitious projects.

He said: "I think if you have an excessive blame culture, where for every failure there has to be a scapegoat, every failure is deemed to be a culpable failure, then you have an environment, a culture, in which failure is not recognised, failure is hidden, and you become the prisoner of sunk costs. Good organisations cut their losses early, learn from the things that have been tried and haven't worked, and move on."

"David Cameron's "Behavioural Insight Team" – billed as the answer to achieving social change without resorting to regulation – has failed to convince a single Whitehall department to make use of its services, a National Audit Office report reveals.

The so-called "Nudge unit", set up last July with seven full time staff at a cost of £500,000 a year, has instead been sidelined, the report finds.

Dozens of new regulations have been drafted by civil servants without considering alternative ways of getting businesses and individuals to alter their behaviour.

The failure of the nudge unit to influence the behaviour of Whitehall officials will undermine its credibility.

The Prime Minister has placed significant store by the theory espoused in "Nudge", a book co-authored by Chicago University professor Richard Thaler, who has since become a Cabinet Office adviser.

However, the NAO found little Whitehall interest in the "nudge unit". "The Cabinet Office told us that it has not been consulted by departments to date about possible alternatives to regulation at the assessment stage," it said.

Employers have a 'duty’ to nudge staff into shape

Department of Health is pushing voluntary workplace and industry health pledges as part of Whitehall plans to improve the country's wellbeing

Employers are being asked to take centre stage in the Government’s efforts to “nudge” the population to become more healthy.

The Department of Health wants companies to formally promote public health messages around alcohol consumption, drug use, fitness levels and eating habits.

Restaurants and food retailers in particular are being targeted to show the calorie content of meals on menus and packaging so that customers are “empowered to make the right choice”.

Under the proposals companies signing a “pledge” will have to self-report each year, setting out what they have achieved.

The initiative called the Public Health Responsibility Deal is designed as an alternative to regulation as is part of a wider Whitehall plan to encourage voluntarily changes in public behaviour around health and wellbeing, the environment, paying taxes and philanthropy.

Dozens of large companies, charity groups and social policy experts have joined five working groups at the Department of Health that are examining issues like the nutritional labelling of food, the promotion of exercise and tackling excessive alcohol consumption.

It is understood business groups support the workplace health promotion but some are concerned over the shift from advocating best practice to setting down specific requirements. They fear that as large companies seek to comply with the pledges they will be turned into compulsory measures that are passed down through supply chains.

“I can’t think of many employers who will lecture their staff about how much they drink at the weekend,” said one source.

Employers may also be asked to sign up to an overarching pledge on improving the health of their workforce without knowing fully what will be expected of them as the working groups may not finalise their proposals in time for the launch, which is expected in the next month.

The Department of Health said companies alongside charities and public health experts had a “huge role” to play in improving the country’s health.

“We firmly believe that collective voluntary effort by these organisations can deliver real progress, more quickly than regulation. If this does not work, we will consider the case for introducing change through regulation,” said a spokesman.

The Department is working with David Cameron’s Behavioural Insight Team, which is advised by Richard Thaler, a Chicago professor who is recognised as popularising “nudge” theory. Nudge is based on libertarian paternalism and the idea that governments can design environments that make it easier for people to choose what is best for themselves and society.

Nick Clegg has said: “The challenge is to find ways to encourage people to act in their own and in society’s long-term interest, while respecting individual freedom.”

The Department for Environment, Food and Rural Affairs (Defra) has six responsibility deals covering everything from waste packaging to landfill. Some 48 companies including Coca-Cola Enterprises and Proctor & Gamble are backing the so-called Courtauld 2 agreement on packaging while 576 companies have backed plans to halve the amount of construction waste going to landfill by 2012. Separate agreements cover initiatives in clothing, milk production, windows and plasterboard.

Defra said it plans to “explore voluntary responsibility deals on waste among businesses” and a spokesman added: “We are currently exploring areas such as hospitality, paper, and packaging recycling. We will say more as part of the Waste Review in May, and will continue developing ideas with businesses and trade bodies.”

"In policy circles, behavioural economics has become extraordinarily fashionable, largely because its insights are presented as evidence-based and academically rigorous. Stickk.com cashes in on the fact that pledges made in public are more likely to be honoured than those kept private. Continual external monitoring is a strong deterrent against dishonesty: users nominate a “referee” who polices their behaviour by checking the scales or counting up cigarette butts. Plus, to seal the deal, committed users can add friends to their online pledge; or, to put it more brutally, widen the circle of witnesses if and when they renege on their word.

The reason this works is that shame, especially when coupled to the prospect of losing hard cash, is a powerful incentive for changing behaviour. One of the website’s co-founders, Professor Ian Ayres, a lawyer and economist at Yale, is the author of Carrots and Sticks, a bestselling book on the principles of behavioural economics. He suggests naming an “anti-charity” – one that you wouldn’t think of supporting – as the beneficiary of your broken promise: a person is less likely to break their pledge if the money goes to an undeserving cause. In the US, opponents of gun ownership might try harder to lose those extra pounds if their forfeit was heading to the National Rifle Association; here, a Tory supporter could motivate himself by setting up a donation to Ed Miliband’s constituency association.