It may well have been the basis of all British currency for more than a thousand years, but the humble penny may not be with us much longer.
George Osborne came within weeks of scrapping 1p and 2p pieces when he was Chancellor back in 2015. He was only stopped by then Prime Minister David Cameron who feared a public relations disaster. Now, Mark Carney, Bank of England Governor, seems to suggest that the UK will follow countries such as New Zealand and Australia in scrapping the smallest coins.
He should know – as Governor of the Bank of Canada he oversaw the withdrawal of the 1 Cent coin.
What are the arguments for scrapping the humble copper, and are there any for keeping it?
Inflation has steadily eroded the purchasing power of the penny, to the point where their only function seems to be making prices look smaller. All shopkeepers know that £1.99 is a much more attractive price than £2.
Getting rid of the smallest coins would of course mean that prices will be rounded up. However, an increase of 1p on a 99p loaf of bread is not going to have any real effect on inflation. Bank of England analysts have calculated that even if retailers round up all prices to the nearest 5p, inflation would only be pushed up by 0.07 percentage points.
There would be some savings. Even though they are now made of plated steel rather than real copper (actually bronze) it costs more to make 1p and 2p coins than they are worth. What’s more, the same report pointed out that 60% of 1p and 2p coins are used just once. An estimated 11.2 billion pennies are currently in circulation or at least, down the back of the sofa.
Handling them wastes time at tills – between two and two-and-a-half seconds per cash transaction, according to one study. So although prices might go up a little if we scrap the copper, we might save money as a country, and save time when we go shopping.
We just don’t really want them anymore. It looks as though production of 1p and 2p coins by the Royal Mint has already fallen, with 288 million minted in 2016-17 compared to 500 million the year before.
It has to be admitted that 1p and 2p coins are now almost worthless. Most of us don’t know what to do when we get them in change, although feeding them back into a self-service checkout at the supermarket may be strangely satisfying.
A more sensible way to dispose of them is to drop them into a charity collection. Charities may be the biggest losers if copper coins are withdrawn, and this may be the one reason to keep them.
Looking forward to being penniless?
Whether or not you believe that the penny is ready to be dropped, the decline in its value shows the effect of inflation.
The penny more than doubled its value at one point when it briefly became the New Penny in 1971. Then decimalisation decreed the old penny, with 240 to the pound would be replaced by the new coin that was very nearly dubbed a cent.
Back then, just nine might buy a loaf of bread. It’s value has fallen steadily ever since.
It’s a sobering reminder that the value of cash, and cash savings are being constantly eroded by inflation – and that if you want to preserve the value of your money, you may need to think about investing it, rather than keeping it in a jar. Take a look at our cash management calculator to help you find the best rates.
At Continuum we would be happy to help with all of your financial planning needs.
The value of investments can fall as well as rise and you may get back less than you invested.
theguardian.com – George Osborne came within weeks of scrapping the penny – 30th June 2017
bankunderground.co.uk – Opposing change? The price impact of removing the penny – 22nd August 2018
theguardian.com – The cost of living then: 20p a pint, and a Mini for £600 – 5th March 2004