HC Deb 20 December 1983 vol 51 cc403-10

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Major.]

12.55 am
Mr. Marcus Fox (Shipley)

The reason for this debate is important, and it goes much further than the suggestion that a plastic £1 note should be introduced. It is important because our traditional £1 note is under threat, and the Economic Secretary will forgive me when I suggest that a little dirty work at the crossroads may be in hand. By that I mean that, much more quickly than we think, there may be from the Treasury a move to take our £1 note away from us, leaving us with only a £1 coin. My hon. Friends know me well enough to appreciate that I would not lightly, in an Adjournment debate and at this hour, make such a strong statement.

Many of my hon. Friends feel as I do on this issue, and in the new year, if I am driven to it, I shall table an early-day motion on the subject. I am sure that it will attract many signatures, because we must take care when certain proposals are foisted on us.

It should not be thought that the £1 coin was introduced without causing some anxiety. In my part of the world a £1 note is a valuable piece of currency and is not to be dismissed lightly. Many of my constituents, when doing their Christmas shopping, do not just buy computers as presents. Indeed, when they do their weekly shopping they watch every penny, and they certainly do not want to have only a £1 coin that gets lost among their other loose change. That is happening now, but it would happen all the more if what is forecast were to happen.

I am glad that my hon. Friend the Economic Secretary is to reply to this debate because I have always found him courteous, although in some answers to parliamentary questions on this subject he has given the impression that people were consulted about the introduction of the £1 coin. Having looked carefully into the matter, I suggest that the only consultation that took place—I agree that many groups were brought into it — was to question people about the design in metal that it should be. They were not given a choice between a coin or a note, be it of paper or any other substance. In other words, in that consultation people did not have a choice, or option.

In my view, if people had been given a choice, the £1 coin would never have seen the light of day. I do not want to cite examples from other countries, and perhaps I need only mention America, where a dollar coin was introduced. It received very short shrift and it is now a thing of the past as the American people overwhelmingly opted for the dollar note that they had always known. I do not stand alone in my warning to the Minister about the phasing out of the £1 note.

On 18 November 1983, the Minister said: It has always been the Government's intention to withdraw the £1 note from circulation in due course once the public have had time to become accustomed to the £1 coin." —[Official Report, 18 November 1983; Vol. 48, c. 596.] That plan is misguided. There is another option called consumer choice. Conservative Members talk a great deal about choice, but it appears that the Government do not want it to apply to currency. Yet that is a classic area for choice. We must be careful not to make changes that cause people to point their fingers at us because they have not been consulted.

The public are far from becoming accustomed to the £1 coin. Indeed, the reverse is true many people detest it. They live with it, but by any yardstick the new coin is a flop. Short of imposing it, there is no hope of it being accepted voluntarily.

The figures speak for themselves—and who better to quote than my hon. Friend the Minister? When the coin was introduced, 580 million notes were in circulation. By last month, that figure had fallen by only 50 million. The banks hold about 50 per cent. of the coins that have been minted—about 280 million. There is little demand for the coins, and they have not disposed of their initial allocations. If I am wrong, no doubt my hon. Friend will correct me.

There are other ways of ensuring that notes are phased out. They are becoming so filthy that people may be persuaded that a coin is a better alternative. Perhaps that is a deliberate policy. I am rather long in the tooth, having been in the House for 13 years. Until the coins were introduced, when I cashed a cheque at our Post Office I used to get new notes. I have not had any for months. When I mentioned that to the cashier—who shall be nameless as he is a public servant—he told me that the Post Office does not get new notes any more. He said that they were too expensive. Apparently there is a considerable charge for new notes. I cannot complain about that as I am trying to persuade our nationalised industries to be more efficient and to make the public sector aware of the need to economise. But there is something rather sinister in the fact that I cannot obtain a reasonably clean £1 note. I hope that that is not a deliberate policy to show that, ultimately, we must turn to the coin.

One option would be to continue to run the note alongside the coin. But that means a fair test, and new notes must be issued. The notes in circulation must not be allowed to become ever more tatty and dirty. If my colleagues turned out their pockets, I should be surprised if there was a new, clean £1 note among them. That option assumes that there is only one alternative, which is to move from notes to coins. But there is another way, which is the subject of the debate. I refer to a plastic pound note. When many of my colleagues heard about that they thought that it was rather hilarious. They perhaps had visions of something like an Access card. I had better be careful to maintain the impartiality for which I am famous. They may also have had visions of something like an American Express card or Visa card. However, the plastic note is as thin as paper. It is very hard to tell the difference between it and paper. I am grateful to my neighbours in Bingley, because some of them have friends in the Isle of Man, and they have sent me detailed news of what is happening in that little part of the United Kingdom.

Those on the Isle of Man are far more enlightened than we are. Their research goes back nearly 15 years. They know what consumer demand is. Since decimalisation in 1971 they have retained a 50p coin and a note. I leave it to hon. Members to guess which is the most popular. There are no prizes. Since 1978, they have had a £1 note and a £1 coin. Again, there are no prizes for guessing which is the most popular. Since 1981—and this shows how far-sighted they are they have had a £5 note and a £5 coin. In every instance it has been proved conclusively that notes are preferred. That is true the world over.

I admit that we have a problem with our existing f:1 note, just as the Isle of Man had. Pound notes deteriorate much more quickly these days. It is reckoned that a £1 note has a life of about nine months. As a coin has a life of 30 to 50 years, the choice is easy. The Isle of Man has opted for a plastic note that is specially designed. The results have been staggering. The notes were issued by the banks from 23 November. Within 11 days, 33 per cent. of new notes printed were in circulation. The old paper note is still valid, but all new notes will now be plastic. The public's reaction has been startling. The new notes were received, according to an official spokesman for the Isle of Man. with delight, interest and acclaim. People liked the note's durability, and it is expected to last between five and 15 years. Who can say how long the notes will last, but several of my colleagues have tried to tear the note by hand and none of them has succeeded. It is virtually impossible. It can be folded. It does not absorb water, so it is resistant to dirt which is carried by moisture. It will, therefore, overcome all the problems of the dirty note.

No doubt people will want to know the cost of such a note. However, there is hardly any difference in the cost of producing the old note and the plastic note now issued in the Isle of Man. The difference is 2.8p. With our demand, that cost difference could no doubt be reduced. I do not know what the cost of producing a £1 coin is. Perhaps the Minister can tell us. Of course. there are drawbacks. For example, the plastic cannot hold a watermark or plastic strip. However, it is a low denomination note. Forgers will not be thrilled about the idea of making a £1 note. They are interested in fivers, tenners and £20 notes. I suppose that the risk of detection is just as great, but the take is much higher. No doubt the Treasury will make much of the idea that we could prevent forgery of such a note. But I have some good news for it. The Treasury may believe that there is no answer to counterfeiting. But can we talk about building Concorde, putting a man on the moon, and fighting a war in the Falklands and then say that something like this is beyond us? I cannot accept that there is no way in which to solve the problem.

Since initiating the debate, I have been inundated with messages of support. Two major companies, one of which is an American multinational employing many thousands of people in the United Kingdom, have given me a solution. I shall not give the name—it consists of three letters — of the highly successful British chemical company that has informed me that its petrochemicals and plastics division can solve the problem.

In America driving licences are used like identity cards. They must be carried at all times and it is vital that forgeries are able to be detected. Again, we are talking about plastics and laminates, but a watermark has been devised so that a small illumination will show whether the licence is a forgery. It would not take much to adapt that.

What is beyond doubt is that the El coin is not acceptable. I have been in touch with two supermarkets. The chairman of Tesco described the situation as a nightmare and said that customers refused to take the coins. Every hon. Member appreciates the confusion of elderly people. In a sub-post office today I heard two elderly ladies say, "Please don't give us any of those coins." One lady actually pushed them back and received notes instead.

Returning to basics, I have a sneaking feeling that the Treasury intends to do the dirty on us and to withdraw£1 notes in the near future. That must not be. The Minister must at least promise that he will evaluate the possibility of a plastic note, together with the information that I have given today. I hope that he will also allow time for my proposals about tackling the problem of forgery to be understood.

The Minister's Department is not the most popular in the United Kingdom. It has the greatest possible interest in conquering inflation. Yet it is proposing a measure which, psychologically, will undermine its policy. One has only to remember the effects of decimalisation in that respect. Will we never learn? Compulsion—the idea that the man in Whitehall knows best — is very bad policy. It is our currency and the £1 note is central to everything. Why should it be swept away? It would be a breath of fresh air if the Treasury would say that it is open to persuasion on this.

1.12 am
The Economic Secretary to the Treasury (Mr. Ian Stewart)

I begin by congratulating my hon. Friend the Member for Shipley (Mr. Fox) on obtaining this Adjournment debate, on the topical subject that he has chosen and on the very agreeable way in which he has presented his case.

I think that we agree in part on the problem although we disagree about the solution. We seem to share the view that the £1 note is no longer satisfactory in currency as a medium of exchange as it once was. In my view, however, the right response is not a plastic note such as that now offered in the Isle of Man, but a £1 coin designed to meet the needs of current uses, in which slot machines play an increasingly important part.

Due to its decline in purchasing power in recent years, the £1 is now used far more than before as a denomination in cash purchase and change-giving. When the 10 shilling note was replaced by the 50p coin in 1969, its purchasing power was more than twice that of the £1 note today. That leads us all to treat the £1 note rather differently. Instead of being carefully placed in a wallet, it is mistreated by the public, retailers and so on. It is frequently stuffed into pockets and purses instead of wallets and kept in tills with coins instead of being paid into banks for sorting and return to the Bank of England for destruction and replacement.

In terms of consumer choice, therefore, in a sense the public are being consulted through their daily use of the £1 note. If it is under threat, the threat comes from the way in which it is misused. The result has been a serious deterioration of £1 notes in currency. Tatty and dirty notes remain in circulation far longer than they did previously. The results of that are obvious to us all although I assure my hon. Friend that the Bank of England is issuing new notes at about the same rate as last year although the stock itself has declined. It is difficult and expensive to maintain a reasonable standard of note when that stage is reached. Although it represents only about 6 per cent. of the total value of the notes in circulation, the £l note accounts for nearly 40 per cent. of the new notes that are issued. Those are fairly recent figures. One of the consequences of inflation is that the £1 note is not now used in banks' cash dispensers.

While the value of total notes in circulation increased by one third between 1978 and 1983, the number of £1 notes in circulation has fallen steadily from more than 800 million in 1978 to about 550 million now. Moreover, there has been a decline in the number of £1 notes in circulation of about 10 per cent. in the past year. It is not surprising, therefore, that earlier this year the Government decided to introduce a coin for the £1 unit although we made it clear that the coin and the note would circulate together for an extended period before the note is phased out in due course.

I should now like to deal with my right hon. Friend's argument that a plastic £1 note could serve better than the paper one. I am afraid that the matter is not quite as straightforward as he might suppose, although he has imagined some of the points that I intend to raise. There are several reasons for proceeding with caution. Chief among them is the importance of security. I am sure that my hon. Friend will appreciate that it would not be prudent for me to go into detail about counterfeiting and its detection, but I shall make a few points on the subject.

Tyvek 919, the material that is being used for the Isle of Man notes cannot, as the Isle of Man authorities admit. accommodate several key features such as the security thread and a high quality watermark. My hon. Friend mentioned them. Such notes would have to be much more sophisticated than I think is possible to be satisfactory for security purposes. In Britain, we are used to those security devices to check authenticity and any note that is suspected of being a forgery.

Sharpness of features is another feature of genuine paper bank notes. The worn plastic bank notes that I have seen exhibit an unacceptable wearing of the design. The lack of the characteristic feel or crispness of a genuine banknote has also often led to the detection of forgery. I do not want to suggest that wholesale forgery of Isle of Man £1 notes is likely. The security implications of using Tyvek 919 in the limited currency of the Isle of Man are rather different from those in the whole of the United Kingdom. With modern reprographic techniques, however, the risk of extensive forgery and the circulation of false Bank of England notes, even for a value as low as £1, would he considerably increased if the security specification was lowered.

As my hon. Friend has mentioned, the manufacturers of Tyvek 919 claim that the material will give notes a life which is at least four times longer than that of traditional low denomination bank notes. The Isle of Man authorities are more optimistic and look to a circulation life of between five and 15 years. Being realistic, however, they have said that: only practical experience will indicate their true life". Because of differences of scale, the experiences of the Isle of Man and Haiti, which is the only other country that I know has experimented with plastic bank notes, will not necessarily be directly relevant to the United Kingdom.

As to the durability of the new material, I am advised that wear tests show that the material has a tendency to delaminate. That can lead to the disintegration of notes and gives worn notes, even if still comparatively clean, a distressed appearance. Another major problem with plastic notes is their lack of resistance to heat. Such a note which is left on a radiator or another warm surface will crinkle badly and permanently—some even shrivel up.

Plastic notes do not always look as clean as the new Isle of Man samples that we saw last month. I have seen, and can show my hon. Friend, some plastic notes which display only too clearly the effect of use and age. I can only describe them as being in a very unpleasant condition. Those are the serious defects and are quite separate from our anxiety about the potential for forgery. My hon. Friend will know that no major note-issuing authority has yet felt confident enough to abandon paper as the best available and most secure substance for banknote printing. That suggests that the search for alternatives to paper still has some way to go, but if a satisfactory alternative material for banknotes were to emerge in the future, we should, of course, give it full consideration. The material so far available does not appear to provide the answer.

I remind my hon. Friend of the point that I made earlier about the problem with the £1 note, which the public is already treating as though it were in coin form. There is no reason to believe that a plastic note would be treated any differently. Various comments have been made about the £1 coin, so I shall say a little about that. The issues from the Royal Mint are proceeding at a satisfactory rate. At the end of October, the Mint had issued 150 million coins, of which 136 million were in general circulation. As one would expect, there has been a notable increase recently as Christmas approaches, with issues from the Mint reaching £170 million and more than 150 million in circulation this week. Eight months after the launch, the £1 coin already represents over 20 per cent. of total £I units in circulation. The uptake of a new coin is always gradual. The 20p piece met with initial dislike, but it moved into regular use within six months of its first issue.

My hon. Friend mentioned the difficulties in the United States, where a dollar coin did not successfully replace the greenback and said that notes there, and generally elsewhere, are preferred to coins. Circumstances are rather different here. The British public accepted a coin of roughly equal value to a dollar when the 50p was issued in 1969, and experience elsewhere has shown, for example in France with the 10 franc piece and in Germany with the 5 deutschmark, both roughly equivalent to £1 in value, that the public in Europe are not averse to high value coins.

It is sometimes alleged that the £1 coin is difficult to distinguish from other coins. In recognition of some sections of the community, organisations for the blind, handicapped and elderly were consulted in advance about the coin's specifications. Tests carried out by Nottingham university showed that blind people had no difficulty in distinguishing different coins. The wide rim on the 20p coin was put there to help, and the additional thickness of the £1 coin serves a similar purpose. Indeed, after the £1 coin was launched, representatives of the bodies that we had consulted confirmed that the £1 coin, because of its relative thickness, was sufficiently identifiable for their purposes.

Other extensive consultations took place before the coin was launched. These revealed a demand for a £1 coin, particularly from those, like transport undertakings, that use coin-operated machines. I am advised that, for example, London Transport, which favoured a coin, has already converted some of its ticket machines and hopes to complete conversion in the coming months.

Finally, as a Treasury Minister, I should respond to my hon. Friend's comments about costs. It is true that the Isle of Man expects to make savings from the use of the plastic note compared to the costs of conventional material, but the plastic note does not compare well against the coin on cost. I should be as keen as any to take the public expenditure savings that should follow. Details of cost comparisions are understandably commercially confidential between the Mint and commercial firms, but I assure my hon. Friend that, although perhaps modest in the scale of total public expenditure, there are useful public expenditure savings to be had from the coin over time.

For the reasons that I have given, I have come to the conclusion, after considerable thought, that, on a number of counts, and particularly because of the risk of counterfeiting, plastic notes are not appropriate for the currency of the United Kingdom.

Question put and agreed to.

Adjourned accordingly at twenty-four minutes past One o'clock.