UK Circulating Coins Contract
10. The Mint has a five-year contract with the Treasury
to supply all of the UK's circulating coinage. The Treasury pays
the Mint at prices fixed under the contract and the Mint collects
the face value of the coins from the banks on behalf of the Treasury.
The average price paid to the Mint under the contract declines
as volume increases, because, according to Mr Holmes, the Treasury
"would argue that we are benefiting from longer production
The number of circulating coins required in the UK varies from
year to year and attempts to forecast demand accurately have not
yet proved successful.
The clearing banks and the Post Office order coins weekly and
the Mint must anticipate demand and hold appropriate stocks as
best it can.
The Mint needs to avoid a coin shortage, particularly in the run-up
to Christmas, but over-production of UK circulating coins diverts
capacity away from the production of more profitable products.
Mr Holmes said "we are hoping to move towards a structure
where the banks guarantee at least a certain proportion of their
forecast for annual demand".
The Association of Payment Clearing Services argued that "perhaps
the time has arrived for a major re-think in terms of coin supply
to the UK economy".
11. The Royal Mint told us that the "main reason
for the drop in profit from 1995-96 was the new UK circulating
coinage contract". The contract agreed in 1995 involved an
"up-front price reduction of approximately £3 million
(affecting the Mint's profits from 1995-96 onwards) together with
an annual price reduction to encourage improved efficiency".
Mr Holmes said that this was due to a Treasury decision to "take
a lower proportion of our fixed costs on to the UK" in view
of the Mint's profitable performance in overseas markets.
He said that, in the 2000 contract, "the pricing structure
has been slightly improved" but "the Treasury does not
pay anything like cost plus".
He expected "a modest improvement in our financial position"
arising from the 2000 contract.
Dr Mills, of the Treasury, said that the 2000 contract "did
involve a reasonable return on its capital built into the assumptions".
The Treasury's 1995 contract with the Royal Mint for UK circulating
coins had a direct effect on the Mint's profitability, it would
seem by design. Although the 2000 contract is acknowledged to
be an improvement, from the Mint's perspective, supplying UK circulating
coins remains an unprofitable activity. The arrangements for the
supply of such coins also affect the Mint's performance, with
the Mint facing all of the risks associated with variable demand.
We would welcome steps which would lead to the Mint sharing such
risks with other parties.
12. Overseas sales have for decades been a significant
source of income for the Royal Mint. In recent years, the Mint
has faced three major difficulties in overseas markets:
the Mint faces
more competition than before, from "mints starting
to compete overseas that were previously satisfied with producing
only their national coinage" and "more private sector
blank suppliers with spare capacity".
Mr Holmes also said that there were "more overseas central
banks and monetary authorities that are going out to tender and
awarding the business purely on price. These days perhaps there
is less emphasis on reputation, quality and reliability in many
the Mint is "suffering from less
favourable exchange rates than we had a few years ago";
"the traditional demand from
some of our past coin customers appears, at the moment, to be
static or declining".
Despite these problems, the Mint has won "substantial
contracts" for the supply of blanks for euro coins from nine
European countries. These are mostly new markets for the Mint,
which "is aiming at a continuing flow of blanks business
from these countries" in future.
2 Treasury Committee, First Report, 1998-99, Office
for National Statistics, HC43 and Second Report, 2000-01,
National Statistics, HC137 Back
Treasury Committee, Sixth Report, 1998-99, Inland Revenue,
Treasury Committee, Tenth Report, 1998-99, Valuation Office
Agency, HC420 Back
Treasury Committee, Second Report, 1999-2000, HM Customs and
Excise, HC53 and Sixth Report, 2000-01, HM Customs and
Excise: Collection of Excise Duties, HC237 Back
Treasury Committee, Sixth Report, 1999-2000, Government's Cash
and Debt Management, HC154 Back
Treasury Committee, Third Report, 2000-01, HM Treasury,
Treasury Committee, Seventh Report, 2000-01, Government Actuary's
Department, HC236 Back
Treasury Committee, First Report, 2000-01, Work of the Treasury
Committee and Treasury Sub-committee, HC41 Back
Royal Mint Executive Agency Framework Document, HM Treasury,
Mar 97, paragraph 1.1 Back
Ibid, pp14-15 Back
Ev, p1 paragraph 5 Back
Ev, p1 paragraph 2; G. E. Challis (ed.), A New History of the
Royal Mint, Cambridge University Press, 1992, (hereafter Challis),
pp532, 563, 594 Back
Ev, pp1, 3 paragraphs 2, 11 Back
Ev, p1 paragraph 2; Challis, p547 Back
Challis, p549 Back
Ev, p1 paragraph 1 Back
Challis, pp92-3 Back
Ev, p1 paragraph 1. See section 8 of the Coinage Act 1971. Challis
has written that the Trial of the Pyx was "from its beginnings
... a largely ceremonial occasion", p153. The Oxford English
Dictionary defines "pyx" as "the box or chest in
which specimen gold or silver coins are deposited to be tested
at the trial of the pyx". An earlier recorded definition
of the word is given as "the vessel in which the host or
consecrated bread of the sacrament is reserved". "Pyx"
is derived from the Greek word for "box-tree" Back
Ev, p6 table 1 Back
Ev, p5 paragraph 31and Q115 Back
Estimates Committee, Report, 1935, HC95 and Fifth Report, 1967-68,
The Royal Mint, HC364 Back
The Royal Mint, Report by the Comptroller and Auditor General,
1989-90, HC195 and Committee of Public Accounts, Twenty-fourth
Report, 1989-90, HC232 and also see Treasury Committee, Third
Report, 1990-91, The System of Notes and Coins, HC245 Back
We took evidence on several issues not covered in this Report
including the euro (Qq91-106; Ev, p3, paragraphs 12-14; App 2,
section 5 and annex 2) and the introduction of new coins (Qq86-90,
107-8; Apps 1, 2 sections 3-4 and annex 1, and 3) Back
App 5 Back
Royal Canadian Mint, Annual Report, 1999, pp2-3 and 27-47,
available on the internet at www.rcmint.ca Back
Ev, p3 paragraph 11 Back
Q109 and App 7 Back
App 7 Back
Ev, p3 paragraph 11 Back
Qq 8, 24 Back
Q24 and Q126 Back
Q91 and Ev, p3 paragraphs 12-13 Back