Countries across Europe have scrapped the 1 and 2 euro cent coins. Should the UK follow suit and get rid of the 1p and 2p coins? As we move towards a cashless society surely they are obsolete? Or would getting rid of low-value coins push up inflation, making people worse off?
Are you like me? Do you – around once every six months – stagger into the supermarket with a very heavy carrier bag? Do you then head for the Coinstar machine and laboriously tip in your jar (and plastic bags in my case) of pennies, 2p, 5p and 20p coins?
My record – I found an extra carrier bag at the back of the wardrobe I had forgotten to cash in – is £103. But it looks like that time honoured practice could be coming to an end if government plans to scrap the 1p and 2p coins get the go-ahead.
Are the Government really planning to do that?
‘Possibly’ is the answer. In Chancellor Philip Hammond’s Spring Statement a consultation paper seemed to point the way to the scrapping of the coins, but – as we will see below – there was a significant backlash against the idea. For now, the plan has been shelved. But do not expect it to remain on the shelf indefinitely: cash is expensive. It is expensive to produce and it is expensive to process. As more and more of us use non-cash forms of payment, the days of the 1p and 2p coins could well be numbered.
Why are coins scrapped?
There are generally one of two reasons. Either the cost of producing them is too high – when Canada phased out the penny (one cent) in 2012 the cost of producing each coin was 1.6 cents – or the coins are worth so little that they are no longer used. For example, in Switzerland, the one Rappen coin had fallen into disuse by the middle of the 1980s, although the coin was still produced until 2006.
This is a practice followed in many countries. Russia has scrapped the 1 and 5 kopek, Hungary has got rid of the 1 and 2 forint and – goodness me – Papua New Guinea has even scrapped the 1 and 2 toea. Apparently, the only country that will not scrap low-value coins is Germany: it is “unthinkable” apparently, as both shoppers and retailers are “obsessed with precise pricing.”
What is interesting is that several countries – including Belgium, Ireland and the Netherlands – have already scrapped the 1 and 2 euro cent coins. The Euro is currently trading at €1.10 to the pound, making 1 and 2 cents all but equivalent to the 1p and 2p coins in the UK.
Does scrapping low-value coins lead to inflation?
It is an understandable concern. ‘Surely all the prices at 99p will be pushed up to £1 and that will lead to inflation?’
In my experience there are now far fewer ‘99p’ prices and – if you are paying by card or by contactless – it does not matter what the price is. However, the Bank of England’s opinion is probably worth more than mine and in a recent blog post, the Bank stated the “overwhelming evidence of literature and experience” suggested that pensioning off the 1p and 2p coins would have no impact on inflation. There would, said the Bank, be no “economically significant impact on inflation” with the calculations showing that even if retailers rounded prices up to the nearest 5p inflation would only be pushed up by 0.07 percentage points.
So what will happen in the UK?
In the UK, the decimal currency was introduced on 15th February 1971 and included the decimal halfpenny. Production of that coin ended in 1983 and it ceased to be legal tender at the end of the following year.
Following the Chancellor’s Spring Statement there were several news stories suggesting that the Government was considering getting rid of 1p and 2p coins – as well as the £50 note.
Why was the Chancellor thinking of doing that?
As I have described above, our cash habits are changing and there has been a sharp decline in the use of low denomination coins, with some estimates suggesting that 60% of 1p and 2p coins are used in just one transaction before they are saved in someone’s cookie jar, popped in the charity box next to the till or – no, I have never done this but apparently people do – thrown away.
Meanwhile, the Royal Mint needs to produce around 500m 1p and 2p coins a year to replace those that go out of circulation.
Businesses are also starting to discourage the use of the coins, pricing items to discourage the use of 1p and 2p coins which are costly to handle and bank. Clearly, there is a reason it is called Poundland, not 99p Land…
“Keep our coppers”
So getting rid of low denomination coins makes a lot of sense, and you can understand those countries in Europe who have phased out the equivalent euro coins. But the UK Government was quick to say it had no plans to kill off the coins – perhaps responding to the Daily Mail saying it was a “PR disaster in the making” as it lamented the impact on penny sweets and the ‘penny pushers’ in the nation’s amusement arcades.
‘The penny’s dropped’ claimed the Mirror, after a spokesman for 10 Downing Street confirmed that the plans would not go ahead. Various charities also welcomed the news, saying that “economic conditions are tight and traditional collection methods are still important to us.”
So, for now, our coppers are spared, but George Osborne was rumoured to have been close to abolishing the coins when he was Chancellor, and it can only be a matter of time. And for some people, it cannot come soon enough…
A cautionary tale…
I must end with a note of warning. It was a Saturday just before Christmas. I parked the car in Sainsbury’s car park. Hauled my carrier bag full of copper off the back seat. Staggered into the supermarket. I’d just got into the entrance when the bag burst. I spent half an hour on my hands and knees picking up £52.37. And trying to avoid people I knew. Cashless society? Bring it on, I say…