Thirtieth Report - The production and distribution of cash

We are not convinced that the public bodies understand how declining access and acceptance of cash can adversely affect many people’s lives. Some consumers prefer to use or rely on cash—particularly the elderly and lower income groups; those in rural … Read more We are not convinced that the public bodies understand how declining access and acceptance of cash can adversely affect many people’s lives. Some consumers prefer to use or rely on cash—particularly the elderly and lower income groups; those in rural areas, where poor broadband and mobile coverage limits the viability of digital payments; and some community organisations, for example charities and churches. The public authorities do not seem to have a clear understanding of how difficulties in accessing cash or being able to use cash to pay for items affect people. For example, in some areas people in low income groups, who often prefer to use cash because it helps them with budgeting, may have little choice but to access cash through pay-to-use ATMs. These groups of people may well be left behind if the UK moves to a cashless society without intervention by public authorities. ATMs can be ‘protected’ in some areas, if there are no other ATMs or post offices within 1 kilometre, but this may not be a solution for all communities. The public authorities indicated to us that people could rely on post offices to access cash, but post offices will not always be open at times when people want to access cash, and we are aware of instances where local post offices have closed or are under threat of closure. 6 The production and distribution of cash Addressing the needs of people in different circumstances and geographic areas requires a well-informed and flexible approach. Recommendation: In undertaking their plan to secure continued access to cash, the government should set out how they propose to incorporate the concerns and requirements of different communities and groups to ensure that solutions actually meet local needs. The plan should set out what consumers, particularly those in vulnerable groups, can expect in terms of accessing and using cash in their locality. Show less

View Details →

The continued reduction of coin use, possibly accelerated by Covid, is likely to put further pressure on the Royal Mint’s ability to deliver a profit on its UK coin manufacturing operations. Coin use has declined over recent years, and the … Read more The continued reduction of coin use, possibly accelerated by Covid, is likely to put further pressure on the Royal Mint’s ability to deliver a profit on its UK coin manufacturing operations. Coin use has declined over recent years, and the Mint’s UK coin production has fallen by around 65% in the last 10 years. For the last three years, the Mint has made losses in its coin-making, including a loss of £3.9 million in 2019–20. In March 2020, the Mint had no plans to manufacture any 2p or £2 coins. Although there has been a recent increase in the demand for coins during the Covid pandemic, this is expected to be temporary and the Mint thinks that the long-term impact of the pandemic will be to exacerbate the decline in coin use. Recommendation: In the Treasury Minute response to this report, HM Treasury and the Royal Mint should set out how they are ensuring that the plans for manufacturing UK coins are sustainable and cost effective. 8 The production and distribution of cash 1 Access to cash Show less

View Details →

No one is in overall charge of making sure that people and businesses have access to cash. The responsibilities and accountabilities of the different bodies for the functioning of the cash system are not clear. Five public authorities have responsibilities relating to different aspects of how cash is produced and …

View Details →

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 …

View Details →

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 …

View Details →

On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury, the Bank of England, the Financial Conduct Authority, the Payment Systems Regulator and the Royal Mint, about the production and distribution of cash.1

View Details →

When asked who would pay for the increasing cost of maintaining the cash system the FCA acknowledged that the economics of the cash system is changing. It suggested that further thought will need to be given to how to support those consumers who might otherwise be digitally excluded.17 It believed …

View Details →

The Treasury informed us that a lot of work had been commissioned, from both government and outside government, to understand how rapid changes in the cash system were impacting on those still reliant on cash. This work indicated that 2 million people are mostly using cash for their payment needs …

View Details →

The FCA and PSR are working with the University of Bristol to provide a map of access to cash across the country and the different ways in which cash can be accessed, including bank branches, post offices, cash machines and cash back from shops.22 This is being used during the …

View Details →

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 …

View Details →

The FCA and PSR acknowledged that there is not likely to be one solution to meeting the cash access needs of local communities. Both organisations recognised that creative solutions will be needed that are community-based, reflecting the make-up of the local area.31 Responsibility for the cash system

View Details →

We challenged the Treasury on who is responsible for the performance of the cash system. It accepted that it was ultimately responsible for proposing legislation to 20 Qq 39–40 21 Q 40 22 Q 41 23 Q 43 24 Q 57 25 Q 64 26 Qq 63–64 27 HM Treasury, …

View Details →

There are gaps in the current distribution of powers and responsibilities. We asked, for example, who is responsible for monitoring the resilience of the cash machine network and for taking action should part of it fail. The PSR told us that it is responsible for the oversight of the LINK …

View Details →

Coins are produced for the whole of the UK by The Royal Mint (the Mint) under a contract with the Treasury, which also acts as the Mint’s sole shareholder. The Bank of England (the Bank) is responsible for producing notes for use throughout the UK, and it sub-contracts the printing …

View Details →

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 …

View Details →

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 …

View Details →

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 …

View Details →

Once printed, the Bank holds contingency stocks of all notes at its premises to avoid shortages. The Bank sets its minimum contingency stock level by considering potential supply and demand shocks, and benchmarks itself against the practice of other major central banks.45 During 2020 the Bank’s stocks of notes have …

View Details →

According to the Bank, it is not unusual for it to maintain high stocks. It told us that it is more efficient to have long print runs of each note denomination—often lasting up to a year—as short print runs require machine down time, and costly changeovers of printing plates and …

View Details →

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 …

View Details →

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 …

View Details →

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 …

View Details →

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 …

View Details →

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 …

View Details →

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 …

View Details →