Given the big spending stories that usually dominate a Chancellor’s statements, it was surprising that it was a tiny denomination that really made the headlines. In his Spring statement, Philip Hammond hinted that it may be time to take “obsolete” copper coins out of circulation – after a huge backlash that saw Hammond labelled a “penny pincher,” Theresa May has now announced a U-turn on scrapping 1p and 2p coins. So why was such an idea even considered, and what are the potential benefits and disadvantages of getting rid of them?
Around 8% of copper coins each year are thrown away…
The Treasury has suggested that the coins are increasingly obsolete – each year, more than 500 million 1p and 2p coins have to be produced because they are lost down the back of sofas or placed in saving jars, with six in 10 being used just once before this fate befalls them. Around 8% of copper coins each year are thrown away. Coupled with that, a growing number of shops have also started to round the price of products, with the intention of avoiding having to give change in anything below a 5p coin.
This is also against a backdrop of people using physical money less – paying digitally has become easier and more common. A document recently published by the Treasury shows that, despite the new £5 and £10 notes improving the quality of our money, cash is now seen as a second option. The report shows that there has been a significant decline in the use of cash for transactions that are less than £5 (compared to higher-value transactions) – something that is particularly true in transport, pubs, restaurants and other aspects of night-time economy. As bars and shops convert to contactless and Apple Pay (generally for reasons of speed and ease), the need for cash declines.
Andrew O’Brien, director of policy at the Charity Finance Group, said, “fundraising conditions are tight, particularly at the lower end for smaller charities where people are reliant on bucket collections and spontaneous contributions.”
However, there is more than just the night-time economy – the charity sector has warned against scrapping copper coins because they fear it will lead to a decrease in funding. A large majority comes from traditional bucket collecting, something that raises millions of pounds in coppers each year, and they are concerned that scrapping the coins would massively impact on their fundraising.
Although they don’t want to be “accused of being luddites,” Andrew O’Brien, director of policy at the Charity Finance Group, said, “fundraising conditions are tight, particularly at the lower end for smaller charities where people are reliant on bucket collections and spontaneous contributions.” Contactless collection tins do exist, but they have markedly higher costs than the traditional buckets. Similarly, Mandy Johnson, chief executive of the Small Charities Coalition, has said that “if the Government remove the opportunity for people to give their pennies in the traditional way, they’re raising the cost of fundraising for small charities.”
There have also been suggestions that scrapping copper currency could impact on the seaside entertainment economy. Arcade push machines, or 2p machines, use the coppers because they are a good size for the game (you drop in a coin and hope that it will nudge further coins off a ledge and back to you) and because they are of such little value, gambling concerns are minimal. If the coins were scrapped, arcades would have to use the 10p coin instead (the nearest in size and shape), thus making them five times more expensive.
A Treasury review is currently underway until June, asking for firms and members of the public to contribute their thoughts…
What impact would there be if the 1p and 2p coins were scrapped? The answer – probably very little. James Smith, an economist at ING Bank, said the impact on inflation would be fairly modest (especially given the limited worth of copper coins), noting that “where prices do change, it’s only really going to be the low-value consumer goods.” John Hawksworth, chief economist at PwC, has said that the increasing use of digital payment would mean there would be a limited impact on the economy, and that some shops may choose to leave prices at 99p anyway.
This is not the first time that idea of scrapping 1p and 2p coins has been floated – former Chancellor George Osbourne also came close to abolishing copper coins in late 2015, but the idea was blocked by then-Prime Minister David Cameron, who thought the public might disapprove. Evidently, based on the reaction to this announcement, strong public disapproval is still in play.
A Treasury review is currently underway until June, asking for firms and members of the public to contribute their thoughts and make sure that “the public’s legitimate cash needs continue to be met.” If you want to give your two pennies worth, head to https://www.gov.uk/government/consultations/cash-and-digital-payments-in-the-new-economy