£2 Note (Hansard, 23 July 1986)

§ Sir Marcus Fox (Shipley)

I thought that it was a stroke of luck when I heard that I had succeeded in getting an Adjournment debate. At 5 o'clock in the morning, I am reviewing that rather rapidly. I assure my hon. Friend the Economic Secretary to the Treasury that I shall not keep him any longer than necessary to put across the points I wish to make. I thought that today was going to be a memorable day, which it was. It was memorable because of the royal wedding, especially as we now have a Duke and Duchess of York, which gives me particular gratification. The memorable day has extended into a memorable morning. I hope the good news will not stop there. Perhaps my hon. Friend will say a few kind words about my subject for debate and suggest that we should introduce a £2 note.

I do not ask my hon. Friend to go back to the debate we had on 20 December 1983. It only seems like yesterday when we debated the introduction of a plastic pound. That was thrown out of court, for a number of reasons, one of which was the ease of counterfeiting, the difficulties of watermarks, and so on. The Minister accepted that the policy of introducing a £1 coin was too well advanced.

A number of things have happened since then. One is that we have virtually conquered inflation. Only in the past few days, a Bank of England spokesman said that there were no plans to introduce a £2 note. He said: the spending power of a £2 note today would be less than that of the old 10 shilling note before its withdrawal 17 years ago. That would be a dangerous argument for the Treasury to accept. It would be to assume that inflation would not be held at its present level, or go lower, as we expect, but that it might go back to the level of the old days when it was in the teens or, dare I suggest, the 26 per cent. under another Government. The argument of inflation as mentioned in our last debate has, I think, receded.

The acceptance of the pound coin is a fact. I do not argue that there should be a change in that direction. The general public feel that there are far too many coins in our purses and pockets, and there are constant complaints. My proposal will go a considerable way towards readjusting the balance.

In the earlier debate on the £1 coin, the Minister said that he would reconsider if there were a more durable substance. I am happy to tell my hon. Friend the Economic Secretary that perhaps the largest company making banknote paper has confirmed that paper is now available which has twice the life of the old £1 note. If such paper had been available a couple of years ago, the £1 coin might not have been introduced.

The company to which I refer exports to about 120 companies around the world which use this high-durability paper to produce banknotes; yet in the United Kingdom, where one would expect this use to be encouraged, it is used only for higher denomination notes. My hon. Friend the Economic Secretary told me that it would cost £3 million a year to keep the old £1 note in circulation. In the case of a higher denomination note of more lasting quality, presumably the cost would be 570 nothing like £3 million a year. If private banks in Scotland can produce their own £1 notes, and bear the cost, is it beyond the Treasury's capability to introduce such notes?

Another reason why I thought that I should raise this subject is that there seems to be a plot to introduce the £2 coin. Indeed, I saw my hon. Friend the Economic Secretary pull one out of his pocket a few minutes ago. To my horror, today's newspaper contains an advertisement by the Royal Mint which tells us that a new £2 coin is available from post offices now. Such coins have been available for several weeks from the parliamentary post office. They have been passed around. One member of the Whips Office — that certainly gives substance to the story—has been regularly passing the new £2 coin to taxi drivers whenever he can. He enjoys it.

The advertisement says that the £2 coin has been struck for a special reason, but, like the £1 coin, it is legal tender. I believe that we should therefore have a full debate on it. As I was outmanoeuvred last time, because the £1 coin had been produced before I could debate the matter, I hope that my hon. Friend the Economic Secretary will confirm that at the moment there are no plans to introduce a £2 coin. We can argue a great deal about whether there should be a £2 note or coin.

Seven coins are in circulation—too many. If another coin is introduced, the time will rapidly approach when our coinage system has to be reorganised. Coin size bears no resemblance to value. The cost to the Treasury of that reorganisation will be considerable. The introduction of a £2 note would lessen the need to embark upon such costs.

I am sure that my hon. Friend the Economic Secretary accepts that there is a gap in our currency. In the chemistry laboratory, the weights one, two, and five are important. The same proportions apply to some of our coins, with the 10p, 20p and 50p, but there has always been a gap between £1 and £5. There is nothing in the middle. However, we have £10 notes, £20 notes and £50 notes. It would have helped us a considerable time ago if there had been a £2 note. It was never obvious when change was being given in pound notes. However, now if one changes a fiver for a small purchase and gets four £1 coins, it is obvious to many people that there is a need for something in the middle range. I could give numerous examples. Canada, for example, only needs four coins—one cent. five cent, 10 cent and 25 cent pieces—and they manage extremely well with the rest in bank notes. The United States has been quoted regularly.

These are early days in this debate. However, I have had support from people in all walks of life and from retailers and traders. Let us have our £1 coin but look to the future. I believe that a £2 note would make the Treasury a little more popular than at present—I am trying to be kind. Perhaps the time is approaching when popularity may be acceptable, even in that important Department.

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

I was going to congratulate my hon. Friend the Member for Shipley (Sir M. Fox) on obtaining this debate. However, my compliments and congratulations would have been in better order a few hours ago, and perhaps this is not the ideal time to discuss such important matters as possible £2 notes and the structure of the currency. Nevertheless, I would like to thank my hon. Friend for the courtesy with which he has put forward his ideas and also for their relative brevity. I shall try to respond in kind.

571 I should like to add one or two footnotes to the debate we had two and a half years ago. It is interesting that one of the advantages of the £1 coin, which I then mentioned, was that it would be useful for slot machines and vending machines. I am glad to say that in gas and electricity meters, telephones, ticket machines, food and cigarette dispensing machines and so on there has now been a substantial measure of conversion and the coin is useful for that purpose.

I was much criticised at the time by the charities, which said that people would never slip a £1 coin into an envelope and send it and that they would lose out. What has happened is that some people now send fivers. Of course, we need only one person to send a fiver and we get as much as five people sending a pound note each. Charities also found that whereas nobody would fold up notes to put in collection tins, people have now been putting £1 coins into the tins. Therefore, the pattern has changed a little differently from what was expected at the time and I am glad that the ideas we had have been borne out in practice.

We are not replaying that debate. My hon. Friend fairly accepts that the £1 coin is now established. I think that the point he raised about the gap between the £5 note and the £1 coin is interesting. However, historically it is not very different from the gap when I was a schoolboy, between the 10-shilling note and the half crown. Indeed, going back a few years before that, when the pattern of currency was the same, the purchasing power of the 10-shilling note and the half crown was relatively greater.

The problem with a £2 note is that there is not much to lead us to believe that it would be treated by the public in a manner different from the £1 note. Double denomination notes have not proved very satisfactory in the few countries where they have been tried. For example, in France the 20-franc note has obtained only about 4 per cent. of the note circulation. In the United States, the 52 note has achieved less than that—only about 3 per cent. of the note circulation. If there ever were a case for a £2 note, it has probably passed. The difficulty, which I explained to my hon. Friend and to many others when we introduced the £1 coin, was not just the cost of replacing notes rapidly but the difficulty of keeping notes in circulation in good enough condition.

My hon. Friend referred to the better quality paper that can be used. I can identify from what he said the company to which he was referring, and I have discussed the matter with it. However, it is not just the paper, but the treatment of it, and the way in which the note is used. The pound note was circulating like a coin, by being folded up into a small size and stuffed into pockets and purses. No note will last long in those conditions. I remain to be convinced that the same sort of thing would not happen to a £2 note.

One of the things that leads me to say that is that there has been a shift in the public's use of notes in the past few years towards the higher denominations. This is not part of Government policy in the management of the currency; it is the choice of the public. In 1982, the number of £5 notes in circulation formed 27.6 per cent.—well over a quarter—of the notes in circulation, by value. Today, it is below 20 per cent., as the proportion taken by £10 and £20 notes rises. That suggests that the £2 note would be more likely to be treated like the old £1 than like a £5 note, which is becoming less used.

On that basis, I am not convinced that there is a powerful case for a £2 note. At one time there might have 572 been a useful slot for it. I accept my hon. Friend's explanation of £1, £2 and £5, and also that we have rather a lot of coins. This is inevitably what happens after a period of rapid inflation, such as we had in the 1970s. One has to reorganise the coinage, because in the coins of the old sizes, the lower denominations are much too large for their purchasing power.

We have taken a number of steps. First, decimalisation gave us an opportunity to change the size of the penny, and subsequently there have been other changes—for example, the introduction of the 20p coin, which does service for two large 10p coins. That has served to reduce the weight of the currency. I agree that so many different coins make a certain untidiness, and I have no doubt that there will be changes to make a better balance without too much weight.

Although many people have said that the 1 coin contributes a great deal extra to the weight of the coinage, it is substantially lighter than the 10p coin. The 10p and 5p, and to some extent the 50p, coins cause the main weight in the purse or pocket. I am sure that my hon. Friend is conscious of that, and of the fact that we are considering what changes might be needed. None is immediately planned, but we consider the subject, and research is being done on it.

My hon. Friend pointed out that Scottish banks can maintain a circulation of pound notes at their own expense. That is true, but they do not have a national responsibility for keeping that type of currency in good condition. The Bank of England, on behalf of the Government, would be bound to keep it in good condition. Although Scottish pound notes are still quite plentiful, I am afraid that they are beginning to show signs of rapid deterioration, just as English pound notes did a few years ago. Even in America I understand that much more serious consideration is now being given to replacing the dollar bill by a dollar coin. I am told that what will swing it will be when the dollar is a minimum basic amount for subway fares. As soon as slot machine requirements reach a certain point, a coin will be needed.

My hon. Friend also asked me about the £2 coin. I assure him absolutely that at present there are no plans to introduce a £2 coin for general circulation. The reason for the £2 denomination of the Commonwealth Games coin is partly because the tradition of having a crown, which is only 25p, has made it rather expensive to produce suitable commemorative coins with so low a face value. It costs quite a lot to produce a special coin for such an occasion. In many respects, 25p does not now meet the costs of production and distribution. It was felt that the new denomination, which was not already in circulation, might be suitable. For that purpose, the £2 coin was chosen.

That amount has been represented by a coin in the past. It was a gold coin then. In modern times, however, a £2 coin is an innovation. For practical reasons, we could not have a £2 coin of the kind that we have struck for the Commonwealth Games this week in general circulation alongside the lop coin, which is of almost identical diameter. It would be much too confusing. This is not an attempt to upstage my hon. Friend's idea. We wanted merely to have a convenient denomination for a commemorative coin. I am glad that it has received a good welcome, and it will serve very well its purpose as a commemorative coin.

My hon. Friend said that it is legal tender, and he is quite right. Technically, all commemorative coins are legal 573 tender. We could go into a sweet shop with one of the old commemorative crowns and use it to buy a bar of chocolate, just as we could use the £2 Commonwealth Games coin. However, that does not mean that we plan to introduce it as a general currency coin. If ever that time came, it would have to be considered in the light of the circumstances.

I apologise for having been unable to give a more enthusiastic welcome to my hon. Friend's idea. A £2 note might have been convenient at one time, but it would not be convenient now. My hon. Friend referred to the most telling statistic: that £2 buys less now than a 10-shilling note would have bought when it was withdrawn from circulation. In 1969 it was felt that that amount of purchasing power would no longer sensibly be represented 574 by a note. The same reasons led us to issue the £1 coin and phase out the £1 note. The arguments since 1969 over the lowest note denomination and what should be represented by a coin have changed very little.

I hope that my hon. Friend will accept that we have given careful thought to his idea. As he may know, I have a personal interest in coinage and currency. I have studied the subject for many years, and for that reason I always look at ideas of the kind put forward by my hon. Friend with an open mind to see whether they might be worth following up. I have looked at his idea, but I am not convinced that it would be right to introduce a £2 note. However, I thank him for the way in which he has put forward the suggestion.

Question put and agreed to.

Adjourned accordingly at twenty-five minutes past Five o'clock am.