THE UK Government has back-pedalled on plans mooted by Chancellor Philip Hammond to scrap copper coins after a sharp backlash from charities and consumers.

Mr Hammond announced a consultation on whether to phase out 1p and 2p coins, as well as £50 notes, in his first seasonal economic update to the House of Commons since moving the Budget from Spring to Autumn.

But just 24 hours later, the Government said it was likely to keep pennies after being warned that the move could hasten inflation and harm donations to charity.

The Treasury estimated that six in ten small denomination coins are used only once before being saved at home or thrown away.

Coin processing firms hold more of our 1p and 2p coins than ever before, with the Government and Royal Mint producing more than 500 million 1p and 2p coins to replace those falling out of circulation.

The Treasury’s accompanying consultation documentation said: “From an economic perspective, having large numbers of denominations that are not in demand, saved by the public, or in long-term storage at cash processors rather than used in circulation does not contribute to an efficient or cost-effective cash cycle.”

Britain’s penny-saving culture has been valued at more than £1.5 billion. Research from price comparison website GoCompare found that 35.7 million people regularly stash money away in piggy banks or coin jars, building up average savings of £43.70.

This compares to 26.9 million people who put money in bank or building society accounts, with most people more likely to use a coin jar as a money-growing vehicle than a stocks and shares ISA or personal pension.

But the number of cash transactions in the UK economy is falling, from 62 per cent in 2006 to about 40 per cent last year. According to UK Payments, cash will be used for just 21 per cent of transactions by 2026.

Contactless spending - via cards or smartphones and watches - is rapidly becoming the norm. There are around 108 million contactless cards in the UK today, with debit cards set to overtake cash as our favoured payment method by the end of this year.

Payments UK said this phenomenon was being driven by the “continued roll-out of contactless cards and card acceptance devices, but also by consumers becoming increasingly comfortable and familiar with making contactless payments”. It also found a marked generational difference in how we pay, with 60 per cent of millennials using contactless payments compared to only 40 per cent of those aged over 65.

Some experts believe even contactless cards could become a quaint relic. Payments made from smartphones and smartwatches via digital wallets have risen by 326 per cent in just a year, with 126 million transactions made this way in the UK in 2017.

James Frost, chief marketing officer at payment processing firm Worldpay, said: “No longer just restricted to light bites and post-work pints, mobile contactless payments are becoming increasingly popular for higher-end purchases too, as manufacturers integrate more sophisticated security features into handset designs.”

Security has long been a major worry associated with contactless spending. Most contactless terminals will limit your spending to £30 but more than half now allow Apple Pay customers to make purchases of any amount. Figures from UK Finance show the amount lost to contactless fraud has doubled, from £2.9m in the first six months of 2016 to £5.6m in the same period of 2017, although this is only a tiny percentage of all contactless spending.

Some scammers are believed to use illegal software to silently “read” contactless card details in public places. But there have been no confirmed reports of money being stolen from a contactless card still in its owner’s possession, with fraud cases mainly relating to stolen cards.

By contrast, digital wallets may be a safer alternative, as smartphones and watches require a hard-to-crack password or thumb print to enable access.

Another fear about contactless spending is that consumers may be losing touch with the cost of everyday items.

In a recent survey by credit service Noddle, shoppers in Glasgow and Edinburgh typically only gave accurate prices for three out of ten products when asked. Respondents struggled most with the price of a double pint of semi-skimmed milk, a tin of baked beans and a dozen eggs. The items most likely to be priced correctly were a box of teabags, premium lager and a takeaway burger.