This week marks the 50th
anniversary of the day when UK adopted a decimal currency on 15th February 1971. I remember it well as I was in my penultimate term at Oxford and had contracted glandular fever which meant I could neither work nor play football, so I had plenty of time to contemplate this momentous undertaking. The UK was one of the slowest countries in the world to make the move to decimalisation and there had been a century and a half of proposals, debate and Royal commissions before the decision was finally made. The old system of 12 pennies to the shilling and 20 shillings to the pound was replaced by 100 new p to the same old pound. The United States was the first country in the world to adopt decimal currency in 1786 and revolutionary France followed in 1795. Canada also adopted the dollar upon self-government in 1867. After the Second World War other former British colonies adopted decimal currencies. India in 1957, South Africa in 1961, Australia in 1966, New Zealand in 1967 and all the other British colonies when they achieved independence. So, by 1971 only the UK and Ireland were left. Ireland’s currency was effectively still tied to Sterling half a century after independence, something that Scottish nationalists might well think about.
Although the British currency had been based on pounds, shillings and pence its abbreviation of LSD actually came from the Latin libra, sestercii and denarii,
Roman coinage. The libre became the lira in Italy and Turkey, the schilling was that of Austria and the pfennig was the German equivalent to the penny. The two-shilling coin was known as a florin, the currency of the Netherlands and the two shillings and sixpence or 2/6 was half a crown, the crown being the currency in Scandinavia. Crown coins were not in general circulation but were occasionally brought out as commemorative issues and I bought one commemorating the life of Sir Winston Churchill, though it has disappeared in my many moves. So-called silver coinage only dated back to the inter-war years, when the silver content was first reduced as it came to be worth more than the denomination, and it was then replaced by cupro-nickel. In the late 1930s the silver thruppence was replaced by a new awkward-looking brass coin similar to the new pound coins.
The penny, thruppence and half-a-crown were withdrawn at decimalisation, as they would have been worth 0.41 of a p, 1.25 of a p and 12.5p, as was the ten-shilling note, to be replaced by ½p, 1p, 2p, and 50p coins. A decimal quarter-penny coin (to be struck in aluminium)
was also proposed, which would have allowed the pre-decimal threepence
to continue to circulate with a value of 1.4 new pence, but was never produced.
The new ½p was a small coin similar to the old farthing previously worth a quarter of the old penny and that was withdrawn in 1960. The Treasury was keen to introduce the new ½p as they thought that otherwise inflation might result. But the strategy proved largely ineffective. The ½p was widely rejected, was ignored in banking, and was withdrawn in 1984 although huge quantities had been issued. Prices were usually rounded up to the next full p and so indeed inflation did result.
In 1984 I joined Pillsbury UK as a director with general management responsibility for Green’s of Brighton, a manufacturer of cake and dessert mixes. Our principal ingredients of sugar and flour, and packaging materials of cardboard materials for pouches would of course have regular increases in costs as did the labour costs in our factories. When I first moved into sales management in Procter & Gamble in the 1970s and we wanted a price increase we simply issued a new price list and that was informed to the trade. But by the 1980s there had been considerable concentration of power among supermarket chains and prices had to be negotiated.
Negotiation was around the price point rather than about the price that we would charge. We might be seeking a 3% increase but that is not how it would work. If for example one of our products had a price point of 49p the next price point might be 52p as 50p and 51p were not recognised as price points. This represented a 6% price increase. That did not mean the supermarket chain would pay us 6% more, it meant that the consumer would pay 6% more and the supermarket chain’s margin would increase.
I firmly believe that the introduction of decimal currency in United Kingdom helped lead to the significant rates of inflation that emerged in the 1970s and early 1980s. This rounding up of prices by a minimum of 1p, where previously any increase in price by could be much lower, on frequently purchased items like food quickly has an effect on consumer spending leading the lower paid who spend much more of their income on food to seek increase in wages. This helped lead to the severe industrial relations during the 1970s. Of course, the oil price shock had a big factor but that was true around the world and rates of inflation in the UK were exceptionally high.
A pound on Decimal Day is worth roughly £12.50 today and of course a very long way down on its pre-war value. An alternative strategy, which was properly much more difficult to implement but which would have avoided much of this problem, would have been to rebase the unit we call a pound on the previous value of 10 shillings, now 50p in the new currency. Under this idea this would have been 100p and thus much closer to the 120 pennies that there were in ten shillings. Of course, this would have meant reissuing all notes in circulation and that would have been a very considerable task but in the long run it might have been a better solution.
It is also worth remembering that in 1971 a pound was worth $2.40 having only recently been devalued from $2.80 in 1967. Today a pound is only worth $1.39, a further devaluation of 57%. Because the devaluation in 1967 was managed by the Bank of England, it was then controlled by the government. Since then, devaluations that have taken place in the market reflect the market view of the economic fundamentals of UK economy. If the excessive inflation of the 1970s and 1980s had been reduced the pound might be a lot stronger today.
But late though the UK was in adopting a decimal currency, in other ways its timing was right as pocket calculators were introduced in the early 1970s and computers were becoming ubiquitous and they could not really handle pounds, shillings and pence.