Scrapping 1p and 2p coins from circulation would not push up inflation, economists at the Bank of England have argued.
Among many of those who support the continuing use of copper coins, the belief is that retailers would round up prices to the nearest 5p if they were axed.
But, in a blog two Bank of England economists have suggested that removing copper coins from circulation would have ‘no significant impact on prices’, particularly when taking into account the ‘overwhelming weight of literature and experience.’
No impact: Scrapping 1p and 2p coins from circulation would not push up inflation, economists at the Bank of England argue
‘Even if individual prices were rounded on all payments, analysis of UK price data suggests no economically significant impact on inflation’, the study suggests.
In March, the Treasury called for evidence on the use of coins, claiming that with so many people stashing them away at home they do ‘not contribute to an efficient or cost effective cash cycle.’
This sparked impassioned debates about the pros and cons of axing 1p and 2p coins. In the end, Chancellor Philip Hammond had to make a statement confirming that ‘there are no proposals to scrap 1p or 2p coins.’
The Bank’s two economists suggest that even if 1p and 2p coins were scrapped, rounding up is more likely to be applied to a final bill rather than individual items.
The study also points out that rounding is relevant only to cash payments, since electronic payments could still be charged the exact amount. In the UK, only 3 per cent of spending is made using cash, the findings suggest.
According to the study, the prevalence of items with prices ending in .99p has fallen in recent years and now only accounts for around 12 per cent of prices.
Using data from the ONS for February this year, it is evident that roughly 70 per cent of prices in the UK already end in a zero or 5, and so would not need rounding at all, according to the Bank’s two economists.
Falling: The decline in prices ending in .99, according to two Bank of England economists
While some consumers may be attached to them, surveys suggest that six in ten 1p and 2p coins are used in a transaction once before they leave the cash cycle.
Many end up in ‘jars, down the back of the sofa or just lost to the ether.’
To meet demand created by such losses from circulation, in previous years the government and the Royal Mint have needed to produce and issue over 500million 1p and 2p coins each year to replace those falling out of circulation, the Bank’s two economists suggest.
One trick pony: Surveys suggest that six in ten 1p and 2p coins are used in a transaction once before they leave the cash cycle
Cash processors are now holding increasingly large sums of coins that have been returned to them, but are now out of favour of out of circulation. The old rounded one £1 coin is one example.
The latest Annual Report from the Royal Mint shows that production of 1p and 2p coins was halved in 2016-17, compared to the year before.
Last year, the Guardian reported that former Chancellor George Osborne was weeks away from scrapping 1p and 2p coins in late 2015, but was stopped by Prime Minister David Cameron, who feared the symbolism of the Conservative party scrapping the penny.
Blog view: ‘Many 1p and 2p coins end up in ‘jars, down the back of the sofa or just lost to the ether’