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He will go down in history as the penny-pinching chancellor.
The most eye-catching announcement in Philip Hammond’s Spring Statement was not the usual cash grab that taxpayers have come to expect.
As digital and contactless payments surge, the Treasury decided to consult on whether the UK should scrap 1p and 2p copper coins— plus, at the other end of the currency scale, the £50 note.
A penny for your thoughts, the consultation document might have said (if anyone in Whitehall had a sense of humour). Nevertheless, it contained some fascinating facts.
Pennies used to be considered lucky. Yet the Treasury says that six out of 10 copper coins are only used in a single transaction before they “leave the cash cycle”. This is wonkspeak for being dumped in drawers, jam jars, piggy banks or down the back of the sofa — anywhere, in fact, where they will not weigh down the pockets or purses of the unlucky recipient.
Apparently, 8 per cent of these coins end up being thrown away. I would not stoop so low — but nor would I bend down to pick one up off the pavement.
Last May, I wrote a column questioning the existence of copper coins. Banks do not want them, unless they are in bags adding up to £1, and good luck paying in more than two of those. Retailers will not let you pay for more than 20p worth of stuff with them (unless, as many readers suggested, you craftily commandeer a supermarket self-checkout machine and shove loads in before the assistant notices).
It transpires that the drive to cash in old “round pounds” led to a glut of copper coins entering the system. Sofas, jam jars and drawers across the land were scoured for shrapnel. This is costing money to store securely.
But the chancellor underestimated how many people would make a big deal of scrapping small change. The penny and tuppence may no longer be practical, but they carry a great deal of emotional currency. After national newspaper campaigns to “save the penny”, Theresa May, the prime minister, did just that barely 24 hours after his speech.
Other countries, including Canada (the homeland of Bank of England governor Mark Carney) have already done away with one and two cent pieces, with the lowest coin in circulation being five cents. Even Ireland no longer accepts one and two cent euro coins.
Ironically, one of the only losers could have been the chancellor himself. He spoke confidently about hitting inflation targets in the year ahead, but if there was widespread rounding up of prices, could this have nudged things in the wrong direction?
The outrage was such you would be forgiven for thinking he’d put a penny on income tax. But such a move was bound to be interpreted as the beginning of the end for physical cash — a much more serious prospect.
The Treasury stresses it is seeking evidence about supporting digital payments alongside the ability to pay in cash “for those who need it”. But I am not convinced.
Let us look at why the government might want to scrap the rather more valuable £50 note. Retailers also balk at accepting these. Unless you physically go to a bank branch, you will not ever get one through a cash point (aside from a handful of ATMs in Mayfair and Canary Wharf). So nobody would miss them — except perhaps Mike Ashley, who famously keeps a wodge in his back pocket.
Nobody, that is, apart from people who are up to no good.
Tax evaders. Money launderers. Participants in the shadow economy. These are the kinds of people who hoard £50 notes as a “store of value”. Just like copper coins, £50s are rarely transacted and not “cost effective”. But they could also be costing the Treasury a packet in lost tax revenue. And do take note — the BoE has no plans “as yet” for a polymer £50 note.
If he does call time on the “nifty”, Mr Hammond will risk upsetting privacy campaigners, and subject of his biggest Budget blooper — White Van Man. The review will investigate which industries use large volumes of cash — likely to include builders, plumbers and gardeners. The idea of a cash transaction limit was also mentioned — it is currently €15,000 in Belgium, France and Spain.
Of course, people could still evade tax by using sackfuls of £20 notes — but it would make it harder. And once the £50 note is no more, how long would it take for politicians to argue that a wholly digital currency would be a much better idea altogether?
The volume of contactless payments may have increased 20-fold in the three years to June 2017, but the BoE’s chief cashier Victoria Cleland claims that demand for cash continues to grow. In the run-up to Christmas 2016, the value of bank notes in circulation peaked at £70bn.
The Treasury acknowledges that there are still 2.7m people in the UK who are entirely reliant on cash (typically the oldest and poorest in society).
While the review promised to protect access to ATMs and counter services via the Post Office network, disappointingly, it did not have a word to say on the future of bank branches.
Ironically, more of us might stick our cash back in the bank if interest rates went up. Ms Cleland estimates that each 100 basis point increase in the bank rate would reduce cash demand by 2 per cent, with the “clearest effect” being seen in the circulation of £20 and £50 notes. For now, keep watching those pennies while you still can.
This article has been amended since original publication to reflect the government’s decision to retain copper coinage
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