[Dave Birch] If you have a look at the Bank of England’s annual report for the year to 28th February 2007 (available as a PDF), you’ll find a section called “Issue Department”. Last year, they had an income of £1.7 billion and costs of £57 million. What a business! The most profitable nationalised industry in history, they didn’t get to spend the profits themselves. Under the various Bank Acts in the United Kingdom, since 1844 they have had to hand over the lot to Her Majesty’s Treasury, a whopping £1.65 billion straight into the Chancellor’s pockets. If I’m doing the maths right — I may not be — that’s the equivalent of 2p on the standard rate of income tax. Banknotes are, in effect, a stealth tax: each British banknote you have in your pocket is an interest-free loan to the Bank of England, and the interest they get on the money (they use it to by government bonds) goes to the government.

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There’s no need for the new Chancellor (I’ll update this with his/her name when I look up who it is) to panic and start hunting around for something else to tax get a couple of billion quid. The seigniorage will keep coming in for a while. A Gallup survey in the UK nearly a decade ago — Bull survey predicts cashless future in the Financial Times Virtual Finance Report. 3(3): p. 2 (March 1998) — found that two–thirds of people in the UK thought that notes and coins will not be needed in the future and almost half thought that notes and coins would disappear within a decade (one–fifth thought they would see the end of physical cash within five years). More surprisingly, four–fifths said they thought e–cash would be more convenient than physical cash even though none of them could possibly have used it. Yet a decade on, more cash than ever is in circulation — about £22 billion at the time of that survey to about £38 billion now — and the take from the stealth tax continues to rise (I don’t resent the money: after all, it’s not as if the government just wastes it).

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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