Cash use dropping but public need to still be able to pay in cash, public spending watchdog says

PUBLISHED: 14:00 20 September 2020

Gareth Davies, Head of the National Audit Office, the UK's independent public spending watchdog. Picture: NAO

Gareth Davies, Head of the National Audit Office, the UK's independent public spending watchdog. Picture: NAO

National Audit Office

A coordinated effort is needed to prevent people who rely on cash from being excluded, the National Audit Office believes.

Ten years ago, cash was used in six out of 10 transactions but by 2019 it was used in less than three in 10 transactions. During the Covid-19 outbreak, data suggests that demand for notes and coins declined by 71 percent between early March and mid-April during lockdown, although demand has been recovering.

The UK’s public spending watchdog’s report was published on Wednesday September 16.

They say the pressures on the cash system could mean that people who rely on cash find it more difficult to use cash in transactions.

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.

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“However, the approach is fragmented, and it is not clear that the action being taken will keep up with the pace of change.”
The NAO says that in the two years to December 2019, there was a 17 percent reduction in free-to-use ATMs. LINK, with support from the Payment Systems Regulator, have protected ATMs in specified areas. However, 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.

The NAO has highlighted that changes in cash use are having an impact on the production of coins. Coin production shrank by 65 percent in the last decade to 383 million UK coins a year in 2019-20, from around 1.1 billion in 2010-11.

When the Royal Mint replaced the old £1 coin in 2017, the public returned large volumes of all coin denominations.

As a result, at the time of the report, the Royal Mint said they had no plans to produce new 2p or £2 coins for at least 10 years. The Mint has reduced headcount by 22 percent on coin-making work within its currency division and scrapped two of its six plating lines.

The NAO said that despite fewer people using cash for transactions, demand for notes has continued to increase. In 2020, the number of notes in circulation reached a record high of 4.4 billion, with a value of £76.5 billion.

In 2018, the Bank of England estimated that only 20 to 24 percent of the value of notes in circulation were being used or held for cash transactions, with UK households holding a further five percent as savings. The remainder is worth approximately £50 billion and could be held overseas, held as savings, or for use in the shadow economy.

In March 2020 the Bank’s contingency holding of notes significantly exceeded its minimum guidance levels for all denominations, with a total value of £39 billion, against its minimum contingency guidance level of £20.5 billion.

The report states that recent anti-counterfeiting work by both the Bank and the Mint is delivering improvements. Indications so far are that £5 and £10 polymer notes, with new security technology, have reduced the incidence of counterfeiting compared to equivalent paper notes. Surveys have found very low counterfeiting rates for the new £1 coin and other denominations.

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