The government's behavioural insights team – also known as the nudge unit – is to leave the Cabinet Office and be spun out as a mutual joint venture that will allow it to sell its services globally at a profit.
The 16-strong team – seen as a world leader in behavioural insight – was set up in 2010 with a mission to find innovative ways of enabling people to make better choices for themselves and society.
The unit will now team up with the charity Nesta, the UK's innovation foundation, which will provide £1.9m in the form of services and financing.
A third of the shares will be owned by the staff, a third by Nesta and a third by the government.
Following pressure from the National Audit Office, details of the deal will have to be revealed in the annual Cabinet Office report and accounts.
Although the government will retain a 30% stake in the mutual, the staff, mostly former civil servants, will be entitled to try to grow the business as they wish.
The move was announced by the Cabinet Office minister Francis Maude. He said: "If the company is spectacularly successful, as we hope it will be, the taxpayer benefits directly, as well as from improvements in public services.
"This first spin out from a Whitehall policy team is one of the ways we wish to unleash the hidden entrepreneurs in the public sector."
The nudge unit is seen as a world leader in the application of insights from the behavioural sciences to government services. The aim of the unit "is to help citizens make better choices for themselves".
David Halpern, the unit's head, said the techniques it had developed into how government and markets work in fields such as tax, health and employment had only scratched the surface.
He said that the joint-venture framework would give the unit the flexibility to work faster and further, and to work for other public bodies and foreign governments. "There is no reason for the UK taxpayer to be paying us to work for the White House."
Geoff Mulgan, a former head of the strategy unit at No 10, where Halpern once worked, and who is now the head of Nesta, said the partnership with the nudge unit allowed for talent sharing and international expansion with cities around the world.
Mulgan said: "We think there is a huge scope to spread experimentalism in government – to try things out. We think the nudge unit has shown experimenting on everything from tax collection or job centres is the right approach.
"It is much better than testing unproven policies on a whole population at once. Behavioural insight methods are still relatively new but we believe that over the next few years they'll become part of the toolkit of governments, businesses and others all over the world."
Whitehall will still provide many of the unit's customers, such as the health and energy departments and the Cabinet Office.
Halpern added: "We simply have not had the capacity to respond to the demand we have been getting from public bodies. Pretty well wherever you see humans and bureaucracy you can use behavioural insights".
He said the unit would continue to publish most of its research, so public bodies can learn from its insights.
The new mutual will also be able to work with commercial organisations, where there is an underlying social purpose to the project.
Initially, the Cabinet Office resisted giving details of Nesta's investment saying it was commercially confidential, but later relented following advice from the audit office.
The unit may offer contracts based on risk and reward so that if its advice to public- or private-sector bodies does lead to significant savings, the nudge unit gets a share.
The structure was agreed after a competitive auction, and will mean the former civil servants can be paid more flexibly.
Maude said: "We live in a world where the old binary choice between services provided in house and red-blooded commercial outsourcing no longer exists."
He pointed out that £1bn of services were now being provided by mutuals. Maude said public-sector productivity had flat-lined between 1997 and 2010, and claimed innovation such as the nudge unit could change this.