The government is considering dropping the penny, one of the oldest coins in the world, and also scrapping the £50 note, the Treasury said in a consultation note.
Two thirds of 1p and 2p coins were used in only one transaction before being discarded, the document said. “From an economic perspective, having large numbers of denominations that are not in demand . . . does not contribute to an efficient or cost-effective cash cycle,” it noted.
The introduction of contactless payments has affected the production of 1p and 2p coins, the report said.
If Britain goes ahead with the proposal, it wouldn't be the first country to remove their lowest denomination coins. For instance, Canada, Australia and Switzerland have already scrapped their lowest denomination.
The Treasury is also considering the possibility of dropping the £50 note and introducing a cap on cash transactions.
“Although the value of the £50 note is low compared to other countries’ highest denominations . . . to attempt to tackle the hidden economy and illegitimate use of cash, some countries have removed their highest value notes from circulation,” it said.
“The government wants to explore what further action it could take to cut tax evasion, the hidden economy and money-laundering risks associated with cash.
“France, Belgium and Spain, along with several other EU countries, have cash transaction limits going up to €15,000. These are often counterterrorist financing measures but research suggests that cash thresholds are likely to have an impact on tax evasion.
“The vast majority of traders and businesses accepting payments in cash will do so honestly. However, in some cases, the anonymous and untraceable nature of cash transactions is perceived to facilitate tax evasion, hidden economy activity, or money laundering.
“This harms the honest majority of businesses, who find it harder to compete, and means less money goes towards our vital public services.”
People have until June 5 to respond to the consultation.
