Figures from UK Finance suggest cash usage has fallen from being 62% of all payments by volume in 2006, to 40% in 2016.
It is predicted to fall to just 21% by 2026. Conversely, the increase in digital payments continues apace.
The AAT Cash & Digital Payments Survey 2018, which informed our consultation response on this matter, appears to support these figures. Just 3% of AAT licensed accountants stated that their clients were using more cash than they were five years ago whilst 10% use about the same. In contrast, 53% stated that their clients are using less cash today than was the case five years ago.
It is against this backdrop that HM Treasury launched a Call for Evidence earlier this year. Quite sensibly they questioned whether the current denominational mix of notes and coins was needed and for interested parties to respond so as to help inform their decision making.
The future of 1p and 2p coins
The Treasury consultation document highlights substantial evidence against the continued production of 1p and 2p coins. Most of these coins are used in a transaction only once before they leave the cash cycle, having been saved in jars or thrown away.
The Royal Mint need to produce and issue over 500 million 1p and 2p coins each year to replace those falling out of circulation. In addition, the cost of production is the same as for higher denomination coins, meaning it is costing more to make and distribute the coin that they are worth.
Although these factors suggest there is a strong case for removing such coins from circulation, sensationalist newspaper headlines during the week following the launch of this Call for Evidence suggest otherwise.
These included a Daily Mail front page calling the decision “a PR disaster in the making”, the front page of the Sun said, “Save our coppers,” and the Daily Mirror complained: “Pennies dropped.”
Subsequent Downing Street responses appeared to suggest that there would be no change to the current denominational mix, undermining the democratic purpose of the Call for Evidence. Despite these comments, the Call for Evidence remains open until 5th June.
Removing some notes and/or coins from circulation is clearly an emotional issue but common sense and reality appear to have largely being discarded as far as media reports are concerned.
For example, much has been made about the impact on sales of sweets priced at 1p and 2p, however the reality is that these no longer exist.
A more serious argument against the removal of such coins comes from the charity sector. The Small Charities Coalition and others have raised concerns about increased costs. This is because scrapping 1p and 2p coins would inevitably hasten moves to contactless collection tins which have a transaction cost.
It’s also worth considering the likes of McDonalds and most independent newsagents who have charity collection boxes at points of sale, filled with millions of unwanted 1ps and 2p coins, which are donated to various charities.
But what’s to say members of the public might start giving 5p coins instead of lower denominational coinage? The potential for increased rather than decreased charitable giving appears just as strong. HM Treasury will need to bear the impact on charities in mind before acting but should note the outcome is just as likely to be positive as negative.
Scrapping £50 notes will do nothing to solve the underlying money laundering problem
Turning from coins to notes, the Call for Evidence states that, “…the £50 note is believed to be rarely used for routine purchases.” Yet this does not correspond to the experiences of taxi drivers, antique dealers and many others who frequently receive payment which includes £50 notes.
It is also worth taking into account the £3bn spent each month by non-UK residents who make tens of millions of trips to the UK each year and will frequently seek to use £50 notes as the highest denomination in order to reduce the number of notes carried during their stay.
AAT is always supportive of measures that genuinely reduce incidences of money laundering. However, there is little hard evidence to suggest removing the £50 note from circulation will achieve this.
If money launderers really are using £50 notes, their removal will simply dictate that they use £20 notes instead. This may make life mildly more inconvenient for money launderers but does nothing to solve the underlying problem.
The above suggests there is a compelling case for 1p and 2p coins to be removed from circulation.
The same cannot be said for £50 notes given change is largely predicated on perception rather than reality.
Whatever HM Treasury decides to recommend, there must be robust supporting evidence for any changes.
Likewise, there must be robust supporting evidence to maintain the status quo rather than simply a nostalgia for penny sweets.
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Phil Hall is AAT's Head of Public Affairs and Public Policy.