Select Committee on Treasury Eighth Report


The Treasury Committee has agreed to the following Report:—


Summary of Conclusions and Recommendations

(a)We recommend that the Government consider expanding the range of financial information published by the Royal Mint in its annual report to Parliament, so that more detailed information on the Mint's performance is provided in future (paragraph 8).
(b)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 (paragraph 11).
(c)The Royal Mint's programme of change could have been better managed in order to minimise its impact on the organisation's financial performance (paragraph 13).
(d)We recommend that the Treasury re-assess its policy of taking 100 per cent of the Royal Mint's annual profit as a dividend payment, so that the Mint can better manage its own investment strategy in future (paragraph 14).
(e)We recommend that the Mint publish a regular forward-looking business plan, based on its unpublished corporate plans (paragraph 17).
(f)The Royal Mint's financial performance target does not appear to play an important role in assisting the management of the organisation, or its oversight by the Treasury, and nor does it provide outsiders with useful information about the Mint's performance. We invite the Treasury's Shareholder Panel, in its review of the Mint's targets, to come forward with a more meaningful range of published financial targets (paragraph 19).
(g)We recommend that the Royal Mint begin work on developing customer service targets relating to those areas of business not covered by current targets (paragraph 20).
(h)We recommend that the Royal Mint's annual report include a statement about the activities of the non-executive directors (paragraph 24).
(i)We are deeply sceptical about the Mint's plans to produce, or buy-in and market, gifts and collectibles only tangentially related to the Mint's core business. We are not convinced that a state-owned enterprise should be competing against the private sector in this way. The main justification for the Mint's new venture appears to be a need to earn higher profits in order to offset losses made on the UK circulating coins contract and to compensate for declining traditional overseas markets. We do not think that a state-owned Mint should be expanding its product range beyond coins and medals in order to deal with these problems (paragraph 26).
(j)We are not convinced that the Treasury's attempt to divide its own shareholder and customer interests can be made to work (paragraph 28).
(k)We agree with the Minister's aspiration for the Mint to become "a very commercial organisation". We welcome the Minister's assurance that the 2003-04 review of the Mint's status would "fundamentally go through all the options that could conceivably face the organisation". We note that, in reply to questioning, she confirmed that this would "routinely include the option of privatisation". There is no question that the State should retain control over the design and specification of its coinage and other issues of this sort. Decisions about the status of the Royal Mint's manufacturing and marketing capabilities, and its overseas work, should be made on the basis of which arrangements maximise value to the UK economy. We do not believe that the Royal Mint should be immune from fundamental innovation, especially given its recent poor financial performance (paragraphs 29 and 30).


1. The Treasury Committee established a Sub-committee in 1998 to scrutinise the work of the various bodies for which Treasury Ministers are accountable. The Sub-committee has completed inquiries into the Office for National Statistics (ONS),[2] the Inland Revenue,[3] the Valuation Office Agency,[4] HM Customs and Excise,[5] the Government's cash and debt management,[6] HM Treasury,[7] and the Government Actuary's Department.[8] The Sub-committee's report on its work from 1998 to 2000 was published as part of the Treasury Committee's report on its work during this Parliament in December 2000.[9]

2. We announced an inquiry into the work and future status of the Royal Mint in December 2000. We visited the Royal Mint in Llantrisant on 13 February and heard oral evidence from Mr Roger Holmes, the Chief Executive of the Royal Mint, on the same day at Pontyclun Community Centre. We also heard oral evidence from Miss Melanie Johnson MP, Economic Secretary, and officials, HM Treasury on 1 March. We received a number of written submissions, most of which we have published with this volume. We are grateful for the evidence we received, written and oral, and for the assistance we received from the Royal Mint in hosting our visit to Llantrisant and helping to organise our oral evidence there.

3. The Royal Mint has a complex status. Although the Mint is described as a separate Government department, run as an executive agency since 1990,[10] its relationship with the Treasury is much closer than that between the Treasury and many of the other departments of the Chancellor. Since 1975, the Mint has been a Government Trading Fund, effectively a state-owned company, which means that its operations are financed by a trading fund established out of public money rather than by Votes and appropriations, authorised annually by Parliament.[11] The Treasury is both the Mint's owner and one of its main customers, for UK circulating coins.[12] The Chancellor of the Exchequer is the Minister responsible for the Mint and holds the title of Master of the Mint. He appoints the Deputy Master who, as Chief Executive of the Mint, is responsible for day-to-day management.

4. The Mint derives most of its income from three types of product:

    —  around 40 to 45 per cent of the Mint's turnover is derived from the sale of circulating coins and blanks-for-striking to overseas countries. This business originated from the striking of coins for the UK's colonies and dominions from the mid-nineteenth century. Exports of circulating coins grew considerably after the First World War and have often represented close to 50 per cent of the Mint's sales since 1945[13]

    —  some 30 per cent of turnover is derived from the sale of UK circulating coins under a five-year contract to the Treasury. The current contract came into effect in April 2000[14]

    —  25 to 35 per cent of the Mint's turnover is due to the sale of collector coins and medals, both to the UK and overseas markets, a business which dates back to the striking of the Waterloo medal in 1815.[15] The Mint has also been responsible for the manufacture of official seals, since 1901.[16]

5. The Royal Mint is an ancient institution. It told us that it has "a continuous history extending over 1100 years from the striking of silver pennies for King Alfred in London in 886".[17] Challis, in his history of the Mint, has traced the modern institution of the Royal Mint to the reign of Henry II.[18] Amongst the Mint's statutory responsibilities is the holding of an annual Trial of the Pyx "where samples of the national coinage continue to be presented annually for examination by a jury".[19] Although long associated with the Tower of London, the Mint is today based in a modern plant in Llantrisant, near Cardiff. It employs over 1,000 staff and has achieved sales of around £100 million per annum over the last ten years.[20] The Minister told us that "a few years ago [the Mint] was not running on a very commercial basis", but, in recent years, the Mint has increasingly been placed on a more commercial footing and a Treasury review in July 1999 suggested new ways in which the Mint could "develop closer partnership with the private sector" while remaining publicly owned.[21]

6. Parliamentary scrutiny of the Royal Mint has been relatively infrequent in recent years. The Estimates Committee inquired into the Mint in 1935 and again in 1968, at a time when the organisation was preparing to move to Llantrisant and for the introduction of the decimal currency.[22] The Committee of Public Accounts published a report on the Mint in 1990, following up a National Audit Office report on the management and performance of the organisation.[23] Our inquiry was the first parliamentary scrutiny of the Mint since it was established as an executive agency and gave us the opportunity to assess the extent to which it had grasped the opportunities arising from its more commercial outlook.[24]

Financial Performance

7. The recent financial performance of the Royal Mint is illustrated in the graph below:

The Mint's profitability has dipped significantly in recent years when compared to the early 1990s and, in 1999-2000, profit for the year fell to just £668,000. Turnover in 1999-2000 increased from the previous year and was significantly higher than in 1991-92, when profits topped £10 million. Overseas sales, which usually constitute over one half of the Mint's business, were at their lowest for twelve years in 1999-2000.[25]


8. The Mint publishes little information to indicate how its various different lines of business are faring, other than the division of sales revenue between the domestic and overseas markets. This makes it difficult for outsiders to gauge in which areas the Mint is doing well and where performance most needs to be improved. Mr Holmes explained that figures on the profits made from the sales of UK circulating coins, overseas circulating coins and blanks, and collector coins were not published for reasons of commercial confidentiality.[26] He told us, however, that the Mint's collector coins business made millions of pounds profit last year, while its circulating coins and blanks business had made a loss. There is potential for the Mint to publish more detailed information about its performance without compromising its international competitiveness, however. The Royal Canadian Mint, one of the Royal Mint's main competitors, publishes a detailed annual analysis of the revenue earned from each type of product it sells and the different markets in which it has a presence, and more information on costs, including marketing expenditure, than does the UK Mint.[27] We recommend that the Government consider expanding the range of financial information published by the Royal Mint in its annual report to Parliament, so that more detailed information on the Mint's performance is provided in future.

9. The Royal Mint identified three broad reasons for its poor recent financial performance, which we discuss in turn below:

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.[28] 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 runs".[29] 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.[30] The clearing banks and the Post Office order coins weekly and the Mint must anticipate demand and hold appropriate stocks as best it can.[31] 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.[32] 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".[33] 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".[34]

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".[35] 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.[36] He said that, in the 2000 contract, "the pricing structure has been slightly improved" but "the Treasury does not pay anything like cost plus".[37] He expected "a modest improvement in our financial position" arising from the 2000 contract.[38] Dr Mills, of the Treasury, said that the 2000 contract "did involve a reasonable return on its capital built into the assumptions".[39] 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.

Overseas Markets

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:

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.[44]

2   Treasury Committee, First Report, 1998-99, Office for National Statistics, HC43 and Second Report, 2000-01, National Statistics, HC137 Back

3   Treasury Committee, Sixth Report, 1998-99, Inland Revenue, HC199 Back

4   Treasury Committee, Tenth Report, 1998-99, Valuation Office Agency, HC420 Back

5   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

6   Treasury Committee, Sixth Report, 1999-2000, Government's Cash and Debt Management, HC154 Back

7   Treasury Committee, Third Report, 2000-01, HM Treasury, HC73-I Back

8   Treasury Committee, Seventh Report, 2000-01, Government Actuary's Department, HC236 Back

9   Treasury Committee, First Report, 2000-01, Work of the Treasury Committee and Treasury Sub-committee, HC41 Back

10   Royal Mint Executive Agency Framework Document, HM Treasury, Mar 97, paragraph 1.1 Back

11   Ibid, pp14-15 Back

12   Ev, p1 paragraph 5 Back

13   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

14   Ev, pp1, 3 paragraphs 2, 11 Back

15   Ev, p1 paragraph 2; Challis, p547 Back

16   Challis, p549 Back

17   Ev, p1 paragraph 1 Back

18   Challis, pp92-3 Back

19   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

20   Ev, p6 table 1 Back

21   Ev, p5 paragraph 31and Q115 Back

22   Estimates Committee, Report, 1935, HC95 and Fifth Report, 1967-68, The Royal Mint, HC364 Back

23   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

24   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

25   App 5 Back

26   Q14 Back

27   Royal Canadian Mint, Annual Report, 1999, pp2-3 and 27-47, available on the internet at Back

28   Ev, p3 paragraph 11 Back

29   Q39 Back

30   Q109 and App 7 Back

31   Q112 Back

32   Q110 Back

33   Q112 Back

34   App 7 Back

35   Ev, p3 paragraph 11 Back

36   Q35 Back

37   Q38 Back

38   Q40 Back

39   Q134 Back

40   Qq 8, 24 Back

41   Q24 and Q126 Back

42   Q8 Back

43   Ibid Back

44   Q91 and Ev, p3 paragraphs 12-13 Back

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