There are no plans to mint any new 2p or £2 coins in the next decade, a public spending watchdog has said.
When the old £1 coin was replaced in 2017, people were given a six month window to hand in their old currency, which unexpectedly saw a rise in all denominations of coins being returned, the National Audit Office (NAO) said.
This in turn led to a huge increase in the Royal Mint’s “buffer" stocks, with targets exceeded in every denomination in March 2020. While 1p and 2p stocks were six and eight times over the target, the Mint had 26 times as many £2 coins as necessary.
The Mint will reduce production levels over the next 10 years to reduce stocks steadily while maintaining production capability.
While storage costs of excess stocks is relatively small, the declining use of cash is putting strain on the system, where many production and distribution costs are fixed.
In 2019, cash was used in fewer than three in 10 transactions, compared to six in 10 a decade ago. It is expected to fall to one in 10 by 2028.
The coronavirus pandemic is believed to have further accelerated the decline of cash, with demand for cash plummeting by 71 per cent between early March and mid-April, according to industry figures.
Coin production decreased by 65 per cent in the last decade, from some 1.1 billion coins in 2010-11 to 383 million in 2019-20.
Running the cash system has costs for taxpayers and businesses.
In 2019-20, the Bank’s note production and distribution costs ran to £119m, while the Treasury paid out £23.6m to mint coins.
However, there are fears an increasingly cashless society could leave those without the means to pay digitally behind.
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.”
Older people and those on low incomes are more likely to depend on using cash, the NAO said.
In March 2020, the government announced legislation to protect access to cash, but the NAO said it must work more closely with the public bodies in the cash system to achieve this goal.
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.”