The Government will consult on whether to scrap 1p and 2p coins, along with the £50 note.
As part of his spring statement on Tuesday, the Chancellor announced a call for evidence on encouraging cashless and digital payments.
In documents released alongside Philip Hammond’s update on the UK economy, it was revealed the Government wants to know whether the “current denominational mix meets the needs of cash users”.
In a paper titled “Cash and digital payments in the new economy: call for evidence”, Treasury officials highlight how – as the use of cash declines and contactless payment increases – the continuing processing and distribution of coppers may not be cost effective.
It is noted how 60% of 1p and 2p coins are only used in a transaction once before leaving circulation, with coppers then either saved or, in 8% of cases, thrown away.
It is estimated the Royal Mint has needed to produce more than 500 million 1p and 2p coins each year to replace those falling out of circulation.
But the cost of processing and distributing these low denomination coins is the same as higher denomination coins.
This means there is a high cost to keeping 1p and 2p coins in circulation relative to their face value and continuing usage, the paper adds.
It is also highlighted how some businesses are rounding prices to avoid the need for coins such as 1ps and 2ps, or setting vending machines not to take some low denominations.
Meanwhile, the Government also wants to know whether to keep the £50 note in circulation.
The Treasury document states the UK’s highest-value note is “believed to be rarely used for routine purchases”.
Despite “significant overseas demand” for the £50 note, the paper highlights how it is “mainly held as a store of value alongside other currencies such as the dollar and euro”.
Officials also suggest there is a “perception among some that £50 notes are used for money laundering, hidden economy activity, and tax evasion”.
On rethinking the UK’s cash denominations, the paper states: “From an economic perspective, having large numbers of denominations that are not in demand, saved by the public, or in long term storage at cash processors rather than used in circulation does not contribute to an efficient or cost effective cash cycle.”
The call for evidence will close on 5 June, with the Government welcoming responses from “anyone with an interest in the questions raised”.
Rupert Harrison, former chief of staff to ex-chancellor George Osborne, revealed on Twitter the Treasury had previously considered scrapping some denominations but had been vetoed at the time by Number 10.
“But, it’s still a good idea,” he posted, highlighting how there is a “global move to phase out big notes” due to fears they are mainly used illicitly.
Sarah Coles, personal finance analyst at investment management firm Hargreaves Lansdown, said: “The writing looks to be on the wall for 1ps and 2ps.
“When it costs more to produce and distribute a coin than the coin itself is worth, governments tend to decide it’s a spent force – and we’re rapidly heading in that direction for coppers.”