Administration and expenditure of the Chancellor's departments, 2008-09 - Treasury Contents

Examination of Witnesses (Questions 140 - 152)



  Q140  Sir Peter Viggers: The problem is, of course, that no one has ownership of identifying counterfeit coins. The people who have got counterfeit coins, if they find they have got one it becomes valueless and it is not in your interest or in anyone's interest to damage confidence in the currency system. Do you think that someone should be given responsibility for screening counterfeit coins? Who should be responsible?

  Mr Stafford: The people responsible are the banks because they are the people who actually circulate the coins through the system and they have a clear responsibility in their cash centres to identify the counterfeit and the machinery is there that is capable of doing it, and we also have to ensure that the public is well-educated and our task with the Treasury is to provide the education so that people know how to identify counterfeits. It is not our task to remove them.

  Q141  Mr Brady: What is your long-term assessment of the demand for circulating coin in this country and in other countries?

  Mr Stafford: Our long-term view is that demand for the UK circulation is remarkably robust. If you go back over the last decade, then demand has been almost without exception consistently around 1.3 billion coins per annum. The principal drivers for that demand are (a) removal of coins from circulation because people lose them, either down the backs of their sofas or in jam jars, and also because when a new store opens, when Tesco opens a new branch, for example, there is the requirement for an injection of more coins into the system. If you look at those two principal drivers, they have been remarkably consistent. We have undertaken some quite detailed research to try and extrapolate what we see the long-term demand being and we can see nothing that is going to materially alter that demand.

  Q142  Mr Brady: You do not see a threat from technology, different methods of payment?

  Mr Stafford: No, because most transactions involving coins are for values less than £10 and in those situations even the Oystercard, frankly, becomes less attractive. It is really where things like a £5 and £10 note is involved that the crossover takes place.

  Q143  Chairman: Can you explain to the Sub-Committee why you have changed the way in which your target one is measured?

  Mr Stafford: Yes, it is to make sure we have a more realistic method of calculating the terms for shareholders. I will let the Finance Director who was responsible for recommending that change explain it.

  Mr Lawrence: We use bullion to finance our precious metals and the question was asked before about supplying precious blanks from overseas. It is a very effective way of financing our bullion, which can be 20, 30, £40 million at any given time. To put it in perspective, the rates we are pay on that are less than half a per cent per annum, so it is a very effective way of financing our bullion purchases. If we did not change our method of calculation and we came to this Committee and were measured on our performance, we would actually start making some pretty poor decisions. So this actually allows the business to make the best business decision for the business.

  Q144  Chairman: Is it in fact easier or harder to increase your average rate of return on the average capital implied?

  Mr Lawrence: Technically, when we did the calculation for the prior year we made our target slightly harder, but it is the right decision for the business.

  Q145  Chairman: Why did your Target 3 performance decline?

  Mr Stafford: Target 3—

  Mr Lawrence: Is the delivery of commemorative coins.

  Q146  Chairman: Commemorative coin delivery in the UK.

  Mr Lawrence: The primary reason is that in the first part of the year we released the new coins, the new reverses, which was the Heraldic symbol, and we had such a fantastic demand for that that it actually put us in a backorder situation and that drove us in the first part of the year to mean that we actually couldn't achieve our targets for the whole year.

  Q147  Chairman: Why have your debtor numbers nearly doubled?

  Mr Lawrence: Again, a very good reason. We had a very, very, very strong quarter four and the relationship in our quarter four, we had a high level of overseas debtors so our business was largely dominated by overseas customers, who typically pay us on 30, 60 day terms, and that was the reason for our increase in debtors. It's just that we had a very good last quarter of the year.

  Q148  Chairman: You made quite a well-publicised mistake with the new 20 pence coins. How was that spotted?

  Mr Stafford: It was brought to our attention by a coin collector, who identified it. We immediately went through the records to identify how this could have happened and it transpired that on the first day of production of the new reverses on one machine they had replaced the reverse design, i.e. the piece with the new design on it, but they had failed to recognise that on the 20p because of the nature of the design the date had had to be moved from the reverse to the obverse where the Queen's head is. Of course, they first looked and recognised that it still had a right Queen's head on the obverse but failed to recognise that that one needed to be replaced with one with the date on it. It happened on one machine for one shift.

  Q149  Chairman: But why did nobody spot it in your organisation?

  Mr Stafford: Because the person responsible checked that the dye still had a right Queen's head image on it but failed to identify—so it was an operator error. It caused one machine to produce it on one shift and it was then replaced, so it resulted in from 8.00 am until 1.00 pm on one shift—

  Q150  Chairman: How many coins was that?

  Mr Stafford: Approximately 200,000.

  Q151  Chairman: I understand the operator error, but why did nobody check it? Why did it take a collector to spot it?

  Mr Stafford: The answer is because on the initial inspection if you have got the right Queen's image—and all the other denominations did not involve moving the date from the reverse to the obverse, the 20p did, and it was an operator error which should have been spotted. Steps have now been taken to make sure that all obverse dyes involving the 20p have the Queen's image with the date on it.

  Q152  Chairman: You have got the 200,00 back? Did you take them out of circulation?

  Mr Stafford: No, they are out in circulation. There is nothing wrong with them in circulation, they are perfectly legal tender. It is a bit of a storm in a tea cup.

  Chairman: All right, we are going to leave it there. Thank you very much for your evidence today. If we have further questions we may follow up in writing before our report. Thank you both very much.

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