The future of one and two penny coins could be in doubt after a Treasury review into their utility found a sharp decline in demand in cash transfers had hit copper coins hardest.
The Treasury’s consultation report suggests that 60% of all copper coins are only ever used in transactions once before ending up in saving jars, cash processing companies, or, for approximately one in twelve copper coins, the bin.
The report stated that “From an economic perspective, having large numbers of denominations that are not in demand, saved by the public, or in long-term storage at cash processors rather than used in circulation does not contribute to an efficient or cost effective cash cycle.” 1p and 2p coins alone are not legal tender for transactions over 20p, and are therefore generally stored or discarded after their first use.
The treasury produces more than 500 million copper coins each year to replace those taken out of circulation through being put into storage, and copper coins make up approximately 40% of all currency in circulation. Sarah Coles, a Hargreaves Lansdown analyst, said that “when it costs more to produce and distribute a coin than the coin itself is worth, governments tend to decide it’s a spent force.” In general, cash only accounts for around 15% of transactions as per the last figures released (2015), and the rise of contactless payment methods in the last couple of years has surely reduced that figure.
Many countries have already removed low denomination coins from circulation, including Australia, Sweden, and Canada – where Mark Carney, the current governor the Bank of England, is from.
These changes have been mooted before, such as in 2013 when the then Chancellor of the Exchequer, George Osborne, considered the possibility that Britain could follow Canada when they removed their copper coins from circulation. At the time, Alec Chrystal, a professor at the Cass Business School, noted that the decision would be made centrally but would be forced by the people rather than government policy. He said: “It will be driven by demand, rather than supply. If we do not use them, then they will drop out of circulation. There are still plenty of places around that need them, not least charities which might well be upset if they were to go.” David Cameron quashed the idea at the time over fears of public disapproval.
At the other end of the scale, the validity of the £50 note is also in doubt. The Treasury report noted that it is almost never used for normal everyday transactions, and that “there is also a perception among some that £50 notes are used for money laundering, hidden economic activity and tax evasion. £50 notes are large enough to be worthwhile keeping in bulk as investment, alongside similarly large denominations of euros and dollars.
The research process is continuing until June, with individuals being asked the question: “Does the current denominational mix (eight coins and four banknotes) meet your current and future needs? If not, how should it change?”