The future of 1p and 2p coins and the £50 note is in doubt after the Treasury said demand was in sharp decline as consumers turn their backs on cash in favour of contactless payments.

Launching a review of cash and digital payments alongside the spring statement, the Treasury said it did not make economic sense to produce coins and notes that were used infrequently.

About 60% of copper coins are typically used in just one transaction before being stashed in a jar or thrown away. The Royal Mint, which produces the UK’s notes and coins, needs to issue more than 500m 1p and 2p coins each year to replace those falling out of circulation.

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Meanwhile, the £50 note is rarely used for “routine purchases”, the Treasury said. It added: “There is also a perception among some that £50 notes are used for money laundering, hidden economy activity and tax evasion.

“From an economic perspective, having large numbers of denominations that are not in demand, saved by the public, or in long-term storage at cash processors rather than used in circulation does not contribute to an efficient or cost-effective cash cycle.”



It is not the first time the idea of scrapping copper coins has been floated in the UK. As the Guardian revealed last year, George Osborne came close to abolishing the 1p and 2p coins when he was chancellor, but the idea was blocked by the then prime minister, David Cameron, who thought the public might disapprove.



Sarah Coles, an analyst at investment firm Hargreaves Lansdown, said the cost of producing the coins was as much of an issue as demand. “The writing looks to be on the wall for 1ps and 2ps. When it costs more to produce and distribute a coin than the coin itself is worth, governments tend to decide it’s a spent force – and we’re rapidly heading in that direction for coppers.”

Cash accounted for just 15% of the value of consumer spending in 2015, as people increasingly turned to contactless and other digital payments. Debit card payments are forecast to overtake cash as the most frequently used payment method this year.



“Cash was used for 7.2bn transactions of under £1 in 2006,” Coles said. “By 2016 it had fallen to 4bn, and by 2026 it is expected to fall to 1.3bn. Meanwhile, shops are using rounded pricing to save the bother of handling low-value coins, so even those who stick with cash have less use for coppers.”



However, the Treasury said in its consultation that cash was not obsolete, an estimated 2.7 million people in the UK entirely reliant on it. More than half of those people live in households with total incomes of less than £15,000 a year.

“It continues to play an important part in the lives of many people and businesses in the UK, whether as a budgeting tool or as a cheap and convenient method of payment,” the Treasury said.

The call for evidence closes in June and asks people to consider a number of questions, including: “Does the current denominational mix (eight coins and four banknotes) meet your current and future needs? If not, how should it change?”