“The writing looks to be on the wall for 1ps and 2ps”, writes one personal finance analyst, while £50 notes may also be at risk after the government published a call for evidence on the future of cash and digital payments as part of today’s Spring Statement.
Entitled ‘Cash and digital payments in the new economy’, the consultation asks for views on how the transition from cash to digital payments impacts on different sectors, regions and demographics.
It also seeks to explore how the government can “support digital payments”, as well as ensuring that the ability to pay by cash is “available for those who need it” while at the same time cracking down on the “minority” who use cash to evade tax and launder money.
However, the consultation goes on to question whether the current denominational mix of eight coins and four banknotes meets consumers’ and businesses’ current and future needs.
When it comes to 1ps and 2ps, the government points out that surveys suggest that six in 10 1p and 2p coins are used in a transaction once before they leave the cash cycle. They are either saved, or in 8% of cases are thrown away.
But it says the cost of industry processing and distributing low denomination coins to make up for those taken out of circulation is the same as for high denomination coins, making the cost high, relative to face value and utility.
At the other end of the denominational scale, the government says the £50 note is believed to be rarely used for routine purchases and is instead held as a store of value. The report continues that there is also a “perception among some that £50 notes are used for money laundering, hidden economy activity and tax evasion”.
It adds 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”.
Sarah Coles, personal finance analyst at financial provider Hargreaves Lansdown, comments: “The writing looks to be on the wall for 1ps and 2ps. 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 - and we’re rapidly heading in that direction for coppers.
“The root of the issue is that demand for these coins has dramatically declined. People are increasingly using debit cards and contactless payments for low-value spending. Cash was used for 7.2 billion transactions of under £1 in 2006. By 2016, it had fallen to 4 billion and, by 2026, it is expected to fall to 1.3 billion. Meanwhile, shops are using rounded pricing to save the bother of handling low-value coins, so even those who stick with cash have less use for coppers.
“Many of the costs of manufacturing and distributing them are fixed – and some are actually rising at the moment - so falling volumes means it costs more to handle each coin. When you add in the impact of inflation eroding their real value, it’s clear that the days are numbered for copper coins.”
The consultation is open until 5 June 2018.