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Help! £50bn-worth of our banknotes has gone missing

Mystery surrounds the exact whereabouts of £50billion-worth of banknotes in circulation, according to a public spending watchdog.

The National Audit Office (NAO), which said cash production capacity should be aligned closely to future needs, also said it could take at least a decade for current stocks of 2p and £2 coins to run out.

The NAO said little is known about around £50bn worth of notes in circulation which are not being used for transactions or identified as savings held by UK households.

Possible explanations include holdings overseas, unreported domestic savings, or cash held for use in the “shadow economy”.

There is little reliable information to quantify how much is likely to be held where, the NAO said.

The NAO said a “fragmented” approach is being taken by the bodies involved in the UK’s cash system.

Five public bodies – the Treasury, the Bank of England, the Royal Mint, the Financial Conduct Authority (FCA) and the Payments Systems Regulator (PSR) – play a role in administering or overseeing it.

But these bodies lack a shared view of what a good outcome for the consumer looks like and how the costs of achieving this are to be taken into account, the NAO’s report said. There is no single body with responsibility for overseeing how well the cash system is performing.

The NAO said when fieldwork was carried out, the Mint had no plans to produce new 2p or £2 coins for at least 10 years.

When the Mint replaced the old £1 coin, people returned unexpectedly large volumes of all coin denominations, the report said.

The Royal Mint’s “buffer” stocks in March 2020 exceeded targets in all denominations, the NAO said, with holdings of 1ps and 2ps six and eight times above target respectively, and £2 coins 26 times over target.

While the storage cost of the excess stocks is relatively small, the Mint’s production of UK coins will be reduced over the next decade, as it balances maintaining production capability with steady stock reduction, the NAO said.

Coin production shrank by 65% in the last decade to 383 million UK coins a year in 2019-20, from around 1.1 billion in 2010-11.

To drive efficiency, the Mint and the Bank should maximise opportunities to learn from each other’s experiences of cash production and align production capacity closely to future needs, it added.

Running the cash system incurs costs for taxpayers and businesses.

The production costs of notes and coins is offset by income from their sale to the market at face value.

The decline in cash use in transactions is putting pressure on the system as many costs involved in cash production and distribution of cash are fixed.

In 2019-20, the Bank incurred note production and distribution expenses of £119million and the Treasury, which pays the Mint to produce coins, incurred expenses of £23.6m.

Gareth Davies, the head of the NAO, said: “As society progresses towards the wide use of digital payments, the use of cash in transactions is dwindling. It may become harder for people to access cash when they need it and those without the means to pay digitally will struggle if cash is not accepted.

“HM Treasury now works more closely with the public bodies in the cash system to achieve the Government’s goal of safeguarding access to cash. However, the approach is fragmented, and it is not clear that the action being taken will keep up with the pace of change.”

Ten years ago, cash was used in six in 10 transactions, but by 2019 it was used in fewer than three in 10. Forecasts suggest it might be one in 10 by 2028.

Covid-19 has potentially accelerated the decline. Industry data suggests market demand for notes and coins from cash centres plunged by 71% between early March and mid-April.

However, cash use appears to have been recovering more recently as businesses have re-opened.

The NAO said older people and low incomes are particularly likely to rely on cash.

In the two years to December 2019, there was a 17% reduction in free-to-use ATMs. Cash machine network Link, with support from the PSR, have protected ATMs where provision is limited.

But the NAO said while there remains a higher number of free-to-use ATMs in more deprived areas, in the two years to January 2020 the proportion of free-to-use ATMs has declined faster in those areas than in less deprived areas.

In March 2020, the Government unveiled legislation to protect access to cash and address the sustainability of the cash infrastructure.

The NAO said it cannot currently see a clear link between the Government’s aim to safeguard consumers’ ability to use cash, and the responsibilities of the five public bodies in the cash system.

In May 2019, the Treasury established the Joint Authorities Cash Strategy Group (Jacs) to coordinate work to support access to cash – but Jacs does not oversee the cash system and has no decision-making power, the report said.

The Treasury should set out more clearly the specific outcomes it wants the cash system to deliver for consumers and small businesses, and how these should be balanced against costs, the NAO said.

Meg Hillier, chair of the Committee of Public Accounts said: “Cash use might be declining overall but it remains a vital part of millions of people’s lives – particularly for some of the most vulnerable in society.

“The Government took its eye off the ball and too many people already have to go out of their way to get their hands on cash.

“It and the regulators will have to hurry to catch up with fast-moving technology, or even more people could be left behind.”

A statement from the Treasury said: “We know that easy access to cash is really important for many consumers and businesses, which is why we are coordinating work to protect it.

“We’re currently developing new legislation to ensure people can get hold of cash when they need it and that the UK’s cash infrastructure remains sustainable.

“We’re also working closely with authorities across the cash system to ensure a joined up approach, which has already resulted in greater protections for ATMs and support for the cash system through the pandemic.”




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