Recommendations & Conclusions
12 items
4
Recommendation
Thirtieth Report - The production and d…
Accepted
The Bank of England seems to lack curiosity about the huge volume of notes not used or held for day-to-day transactions. The Bank estimates that 20%-24% of issued notes are used or held for cash transactions. This leaves about £50 billion worth of issued bank notes whose whereabouts or use …
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The Bank of England seems to lack curiosity about the huge volume of notes not used or held for day-to-day transactions. The Bank estimates that 20%-24% of issued notes are used or held for cash transactions. This leaves about £50 billion worth of issued bank notes whose whereabouts or use is unknown. These notes may be being used overseas for transactions or savings, or held in the UK as unreported household savings or for use in the shadow economy. The Bank does not have any real understanding of what these notes are being used for though says that it is a trend being seen with other major currencies. During the Covid-19 pandemic there was a significant increase in the value of notes in circulation, which the Bank thinks is probably explained by people being more inclined to hoard cash in case they need it. There are implications for public policy and the public purse if a material proportion of the large volume of banknotes whose whereabouts or use are unknown are being used for illegal purposes. Recommendation: The Bank, working with other public authorities such as HMRC, should take action to improve its understanding of the factors that are driving the increase in demand for notes, and also who is holding the approximately £50 billion worth of notes. The production and distribution of cash 7
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Government response AI summary
The Bank of England accepts the recommendation and commits to conducting surveys over the next year to understand household and small business use of banknotes as a store of value. It will also engage with HMRC and the National Crime Agency for additional information.
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HM Treasury
5
Recommendation
Thirtieth Report - The production and d…
Accepted
The Bank of England’s stock of notes seems high and it is not clear to us how the Bank decides upon what is an appropriate stock level. The Bank holds stocks of notes well above its own policies for minimum levels of stocks. For example, at the end of July …
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The Bank of England’s stock of notes seems high and it is not clear to us how the Bank decides upon what is an appropriate stock level. The Bank holds stocks of notes well above its own policies for minimum levels of stocks. For example, at the end of July 2020, it held contingency stocks with a value of £30.4 billion, against its minimum guidance levels of £15.6 billion. We recognise that the Bank would not wish to risk running out of notes. However, we do not understand the Bank’s rationale for holding such high levels of stocks. The Bank does accept that it needs to improve the transparency with which it takes decisions on printing notes. Recommendation: The Bank should ensure that it properly records and evidences the judgements it makes about printing notes and its stock levels so that it can be properly held to account for the decisions it makes.
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Government response AI summary
The Bank of England accepts the recommendation, committing to review its documentation around stock decisions and contingency requirements to ensure it clearly records the main factors contributing to final decisions on print volumes and stocks by December 2021.
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HM Treasury
10
Conclusion
Thirtieth Report - The production and d…
Accepted
We asked the witnesses what they are doing to meet differing needs for cash within rural areas, for example where people might want privacy when withdrawing money and where others, on a budget, might not wish to be tempted to make a purchase if having to visit a shop for …
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We asked the witnesses what they are doing to meet differing needs for cash within rural areas, for example where people might want privacy when withdrawing money and where others, on a budget, might not wish to be tempted to make a purchase if having to visit a shop for cash.25 The PSR told us that its policy is to protect the coverage of free- to-use cash machines. Ultimately, we were told that communities, if they have a good case, are able to ask for help from Link, the cash machine network, if local needs are not being met.26 The recent government consultation on cash access has raised the possibility of changing the current regulations, set by the EU, to allow cashback in shops without making a purchase.27 The PSR also pointed to the importance of the post office network in maintaining access to cash and suggested that it was likely to play an even larger role.28 However, post offices will not always be open at times when people want to access cash, and we are aware of examples of local post offices being under threat of closure.29 We also asked about the impact of declining cash use on fundraising by community organisations, for example charities and churches, but were told by the witnesses that they are not looking at this as responsibility lies elsewhere in government.30
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Government response AI summary
The government agrees with the Committee's observations and commits to protecting access to cash, with a target implementation date of Spring 2021. It highlights ongoing efforts and is considering responses to its Call for Evidence, with next steps to be set out in due course.
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HM Treasury
15
Conclusion
Thirtieth Report - The production and d…
Accepted
The demand for notes has increased in each of the past 25 years. According to Bank figures, in July 2020 the number of notes in circulation reached a record high of 4.4 billion, with a monetary value of £76.5 billion.40 Notes are increasingly being used as a store of value …
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The demand for notes has increased in each of the past 25 years. According to Bank figures, in July 2020 the number of notes in circulation reached a record high of 4.4 billion, with a monetary value of £76.5 billion.40 Notes are increasingly being used as a store of value and therefore the demand for notes has been less affected by the wider decline in the use of cash for transactions. This trend has been seen among other major currencies around the world. The Bank told us that an important reason for this could be the lowering of inflation and interest rates from the mid 1990’s, reducing the opportunity cost of holding cash as a store of wealth.41
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Government response AI summary
The Bank of England agrees with the Committee's observation and commits to conducting surveys over the next year on households' and small businesses' use of banknotes as a store of value, and to engage with HMRC and the National Crime Agency for additional information.
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HM Treasury
16
Conclusion
Thirtieth Report - The production and d…
Accepted
During the Covid-19 pandemic, between March and July 2020, there was a significant increase in the value of notes in circulation.42 The Bank told us this is probably explained by people hoarding cash, and because less cash than usual was being deposited at banks for example by sole traders, window …
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During the Covid-19 pandemic, between March and July 2020, there was a significant increase in the value of notes in circulation.42 The Bank told us this is probably explained by people hoarding cash, and because less cash than usual was being deposited at banks for example by sole traders, window cleaners and gardeners.43
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Government response AI summary
The Bank of England agrees with the Committee's observation and commits to conducting surveys over the next year on households' and small businesses' use of banknotes as a store of value, and to engage with HMRC and the National Crime Agency for additional information, which …
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HM Treasury
17
Conclusion
Thirtieth Report - The production and d…
Accepted
The Bank estimates that 20%-24% of notes in circulation are used or held for day-to- day transactions. In 2018 it estimated that up to a further 5%, or between £1 billion and £3.5 billion, was held by UK households as savings. This leaves about £50 billion worth of issued bank …
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The Bank estimates that 20%-24% of notes in circulation are used or held for day-to- day transactions. In 2018 it estimated that up to a further 5%, or between £1 billion and £3.5 billion, was held by UK households as savings. This leaves about £50 billion worth of issued bank notes whose whereabouts or use is unknown. These notes may be being used overseas for transactions or savings, or held in the UK as unreported household savings or for use in the shadow economy. The Bank does not have enough data even to make broad estimates of how much should be apportioned to each category.44 Stocks of notes
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Government response AI summary
The Bank of England, treating the conclusion as a recommendation, commits to conducting surveys over the next year to understand how households and small businesses use banknotes as a store of value. It will also engage with HMRC and the National Crime Agency for additional …
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HM Treasury
20
Recommendation
Thirtieth Report - The production and d…
Accepted
The NAO found, however, that it was not clear from the documentation shown to them what process the Bank operated to decide upon adequate stock levels, and how the cost implications of doing so were taken into account when building up stocks.48 When pressed by us, the Bank accepted that …
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The NAO found, however, that it was not clear from the documentation shown to them what process the Bank operated to decide upon adequate stock levels, and how the cost implications of doing so were taken into account when building up stocks.48 When pressed by us, the Bank accepted that it needs to improve the transparency with which it takes note printing decisions.49 The Mint’s UK coin production
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Government response AI summary
The Bank of England accepts the recommendation, committing to review its documentation regarding stock decisions and contingency requirements. This review will ensure clear recording of the main factors influencing final decisions on print volumes and stock levels by December 2021.
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HM Treasury
21
Conclusion
Thirtieth Report - The production and d…
Accepted
The Mint’s UK coin production has reduced by 65% over the last ten years, from about 1.1 billion coins made in 2010–11 to 383 million in 2019–20. This reflects the overall fall in production demand over the period, although production volumes increased in some years, for example between 2012 and …
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The Mint’s UK coin production has reduced by 65% over the last ten years, from about 1.1 billion coins made in 2010–11 to 383 million in 2019–20. This reflects the overall fall in production demand over the period, although production volumes increased in some years, for example between 2012 and 2016 with the issue of new 5p, 10p and £1 coins replacing stock already in circulation.50
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Government response AI summary
The government agrees with the Committee's observations on reduced coin production and outlines how HM Treasury and The Royal Mint are improving business efficiencies, reducing manufacturing costs, and enhancing forecasting accuracy to manage the impact of declining coin use.
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HM Treasury
22
Conclusion
Thirtieth Report - The production and d…
Accepted
The decline in demand has been particularly rapid in recent years. This has been in part due to the emergence of contactless payment methods affecting small cash transactions in particular.51 But also, in 2017–18, a Mint-run exercise to recall the old £1 coin, as an increasing counterfeit risk, led to …
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The decline in demand has been particularly rapid in recent years. This has been in part due to the emergence of contactless payment methods affecting small cash transactions in particular.51 But also, in 2017–18, a Mint-run exercise to recall the old £1 coin, as an increasing counterfeit risk, led to an unexpectedly huge return of coins of all denominations as households and businesses emptied their stocks of coins. This led to a large increase in coin stocks and a consequent reduction in the number of coins that needed to be produced.52
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Government response AI summary
The government agrees with the Committee's observations on declining coin demand and outlines how HM Treasury and The Royal Mint are improving business efficiencies, reducing manufacturing costs, and enhancing forecasting accuracy to manage the impact of reduced transactional cash use.
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HM Treasury
23
Conclusion
Thirtieth Report - The production and d…
Accepted
Since 2017 coin stocks have continued to rise. At the end of March 2020, they significantly exceeded the target buffer stocks, which the Treasury set for the Mint to avoid shortages and be prepared for any uncertainties, in all denominations. Holdings of £2 coins were 26 times the target, and …
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Since 2017 coin stocks have continued to rise. At the end of March 2020, they significantly exceeded the target buffer stocks, which the Treasury set for the Mint to avoid shortages and be prepared for any uncertainties, in all denominations. Holdings of £2 coins were 26 times the target, and 1p and 2p were six and eight times above target respectively. At the end of March 2020, the Mint believed that the reduced level of UK coin manufacture that it experienced in 2019–20 would remain for the foreseeable future, and it had no plans to produce 2ps or £2 coins for at least ten years.53
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Government response AI summary
The government agrees with the Committee's observations on rising coin stocks and outlines how HM Treasury and The Royal Mint are improving business efficiencies, reducing manufacturing costs, and enhancing forecasting accuracy to manage the impact of reduced transactional cash use and stock levels.
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HM Treasury
24
Conclusion
Thirtieth Report - The production and d…
Accepted
Since March, the disruption caused by Covid-19 has, we were told, led to increases in demand, as many businesses and consumers hoarded coins in the early months of the 46 Qq 84, 85; C&AG’s Report, para 3.30 47 Q 88–90 48 C&AG’s Report, para 3.30 49 Qq 91, 99 50 …
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Since March, the disruption caused by Covid-19 has, we were told, led to increases in demand, as many businesses and consumers hoarded coins in the early months of the 46 Qq 84, 85; C&AG’s Report, para 3.30 47 Q 88–90 48 C&AG’s Report, para 3.30 49 Qq 91, 99 50 C&AG’s Report, paras 3.3, 3.4 51 C&AG’s Report, para 3.3 52 Q 92; C&AG’s Report, paras 3.6, 3.9, 3.10, Figure 11 53 Q.92; C&AG’s Report, paras 3.4, 3.9, 3.10 14 The production and distribution of cash pandemic in the same way they hoarded notes. To meet this increased demand, from April the Mint pulled forward its manufacturing schedule for the 2020–21 financial year.54 It now expects the Treasury to ask it to manufacture new 2p coins in the next 6 months and more £2 coins within the next 3 years.55 Nevertheless, the Mint expects the increase in demand to be temporary, and that the long-term impact of the pandemic will be to exacerbate the decline in coin use.56
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Government response AI summary
The government agrees with the Committee's observations on coin demand fluctuations due to Covid-19 and details how HM Treasury and The Royal Mint are improving forecasting and operational measures to ensure appropriate coin availability despite declining long-term use.
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HM Treasury
25
Conclusion
Thirtieth Report - The production and d…
Accepted
This could bring further financial pressure to bear on the Mint’s UK coin operations. The Mint has worked hard in recent years to make coin-making more profitable. It has undertaken a series of actions to reduce costs and increase efficiency, including, for example, mothballing two of its six coin-making lines …
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This could bring further financial pressure to bear on the Mint’s UK coin operations. The Mint has worked hard in recent years to make coin-making more profitable. It has undertaken a series of actions to reduce costs and increase efficiency, including, for example, mothballing two of its six coin-making lines of machinery, and reducing the number of full-time equivalent staff it employs for coin-making from 452 in May 2018 to 351in March 2020. Despite its actions, it has made losses in coin-making in each of the last three years, including a loss of £3.9 million in 2019–20.57 54 Q 92; C&AG’s Report, para 3.10 55 Qq 92, 93 56 Q 95 57 C&AG’s Report, paras 3.12, 3.13 The production and distribution of cash 15
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Government response AI summary
The government acknowledges the financial pressures on the Royal Mint and describes ongoing efforts to improve business efficiencies, reduce costs, and accurately forecast coin demand. The response details existing measures rather than new commitments.
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HM Treasury