2p and £2 coin production suspended for ten yearsby
According to the NAO, the rapid decline in cash usage, accelerated by the coronavirus pandemic, has left the Royal Mint sitting on a mass surplus of 2p and £2 coins – enough to last the UK for the next ten years.
On Friday (18 September), the National Audit Office (NAO) announced that the Royal Mint’s stocks had exceeded targets in all denominations and has “no plans to produce new 2p or £2 coins for at least ten years”.
Following a decline in cash usage since 2010, the Royal Mint has reported stocks of 26 times more £2 coins, six times more one pence coins and eight times more two pence coins than required. Total excess coins are worth around £89m, and 2p and £2 coin stocks could last for the next ten years.
According to NAO, the Royal Mint’s prediction of coins fell by 65% between 2011 and 2020. However, it has emphasised that cash demand has been improving since the lifting of lockdown restrictions but believes the pandemic could have an indelible impact on access to cash and cash usage.
Cash ceased being the predominant payment method in 2017 for the first time ever, despite more than £100bn in cash and change still being spent in retail every year.
Then in 2017 and 2018, when the Royal Mint introduced the new £1 pieces and withdrew the now out-of-date coins, an unexpected amount of all denominations were instead returned by businesses and households.
“Cash use might be declining overall but it remains a vital part of millions of people's lives – particularly for some of the most vulnerable in society,” commented Public Accounts Committee chair Meg Hiller.
“The government took its eye off the ball and too many people already have to go out of their way to get their hands on cash.”
Cash usage demographic
As of 2010, cash was used six times in every ten transactions, which then fell to three in every ten transactions by 2019. The outbreak of coronavirus leading to a nationwide lockdown then accelerated the decline in cash usage, causing a decline in market demand for physical money by 71% during lockdown.
“The decline in the use of cash in transactions is putting pressure on the cash system,” said the NAO, which lead to an announcement in March that the government “would be bringing forward legislation to protect access to cash and address the sustainability of the cash infrastructure”.
In 2018, LINK commissioned and funded an independent Access to Cash Review which found that older age and lower income were two key factors in determining cash use.
“As society progresses towards the wide use of digital payments, the use of cash in transactions is dwindling,” said head of NAO Gareth Davies. “It may become harder for people to access cash when they need it and those without the means to pay digitally will struggle if cash is not accepted.”
“HM Treasury now works more closely with the public bodies in the cash system to achieve the government's goal of safeguarding access to cash. However, the approach is fragmented, and it is not clear that the action being taken will keep up with the pace of change,” he added.
Starling Bank shows digital customers influenced further by Covid
Digital bank Starling’s ATM figures show that the percentage of Starling customers using ATMs fell by half between April 2019 (43%) and August 2020 (22%).
“The impact of the coronavirus pandemic has accelerated the move to digital payments and a decline in cash,” commented Starling CEO and founder Anne Boden. “There are huge benefits to digital technology, but we need to make sure that these are felt more widely across society to create a fairer and better banking system for everyone. Education on digital banking is essential to ensure no one gets left behind.”
“As the crisis has sped up the shift to digital and the decline in cash, there’s huge scope to do more to share the benefits of digital technology more widely across society,” said Boden.
The government “and the regulators will have to hurry to catch up with fast-moving technology, or even more people could be left behind,” added Meg Hiller.
Where are all the notes?
According to the NAO report, The Bank of England has estimated that 20-24% of UK notes in circulation are in use or being held for cash transactions, with a further 5% (£1-3.5bn) held by households in savings.
“Little is known about the remainder (approximately £50 billion worth of notes)” said the report. Potential explanations include overseas holdings for transactions or savings and UK holdings of unreported domestic savings or for use in the shadow economy.
“The Bank and other government bodies hold too little reliable data between them, however, to be able to make even a broad estimate of how much should be apportioned to each category,” added the report.
The Royal Mint
The Royal Mint, which has been producing coins since 886 AD, is owned by HMR Treasury which sets out the parameters of the Mint’s operations and manages the rolling UK coin contract.
The production of coins and notes by the Royal Mint and the Bank of England cost the public sector £143m in producing and issuing notes and coins in 2019-20.