Forty years ago this winter the UK got rid of the ha’penny, a small coin worth half a penny. At the time the National Consumer Council described it as “useless”, because of its low values. Forty years of inflation means that today’s penny is worth far less than the ha’penny was back then. Indeed, the 2p is only worth the same as 0.6p was, forty years ago. Both are, to be honest, “useless”.
The Royal Mint refuses to say how much it costs to make coins, but the cost probably exceeds the value for 1p and 2p pieces. The US government has said that it costs 3 cents to make an American penny. That is partly because the US foolishly uses a high value metal (zinc) as the base, rather than cheaper steel, but on the other hand a British penny has more metal in it than an American penny. Our penny probably costs more than a penny, certainly once distribution costs are included. There will also be costs to business, as pennies are moved to banks, counted, redistributed and so on.
In a sense it doesn’t matter how little copper coins cost to make - they achieve nothing.
It is time to get rid of both coins. In doing so we would be following the Swedes. And the Australians. And the Canadians. And about 40 other countries.
All of them have abolished their smallest coins. Sweden has done it repeatedly, starting with their 1 and 2 ore coins in 1972, and recently abolishing the 50 ore as well. This does not mean abolishing the right of a retailer to price at 99p, or at £3.51. They can and still do exactly that. If you pay by debit or credit card, or by Apple Pay or Google Wallet, you pay the exact price. In contrast if you pay in cash, the total bill will be rounded to the nearest 5p. If you buy one item at 99p, you will pay £1. Buy two, you pay £2. Buy three, you pay £2.95, and buy four and it’s £3.95. It is called “cash rounding” and is, as I say, used in more than 40 countries already.
That means there is no inflationary effect. That said, there is no evidence of an inflationary effect of abolishing the ha’penny, or indeed from decimalisation. In addition, prices ending in 99p are becoming less common: ONS price statistics show that 70% of products have prices ending in 5p or 10p already.
Cash is becoming less popular. The absolute number of cash transactions fell by more than half in the ten years prior to covid, fell dramatically during covid, rose a fraction as the economy reopened, and has since returned to its falling trend. Most people won’t even notice the abolition of the penny and the tuppence.
When I worked in the Department for Education, those proposing a new policy were told to ask the question, “Will it actually work?” Well, it worked in Sweden, Canada, Australia and lots of other places, so we can be pretty confident it will work here. Indeed, it worked in all these places even when cash was king, so it will be even easier to make work here, in 2024.
The decline in cash payments means that we are using far fewer coins. This year, the Royal Mint did not have to produce any 1p or 2p pieces. That said, it has produced 174m pennies since 2020, along with 118m tuppences. Assuming that the cost to mint those coins is about the same as the face value, the government spent about £4m producing these pointless coins. Now I admit that £4m is not that much in the scale of things, but we should not be spending millions achieving precisely nothing at all.
Time is up for the penny.