Budget: New law promised to protect poorer communities at risk of becoming 'cash deserts'

Chancellor also poised to confirm abolition of so-called 'tampon tax' at end of year, when UK no longer tied to EU rules

Poorer communities at risk of becoming “cash deserts” as banks and post offices close are being promised a new law to ensure people can still obtain notes and coins.

The chancellor will commit to the legislation in next week’s Budget, amid a growing recognition that the surge in digital payment methods poses dangers for vulnerable groups.

In a separate move, Rishi Sunak is also expected to announce the abolition of the so-called "tampon tax" at the end of the year – when the post-Brexit transition period ends – removing VAT on women's sanitary products.

EU law prevented member states from reducing VAT on sanitary products below 5 per cent, but it is now set to be cut to zero rate on 1 January, the first day Brussels’ laws no longer apply to the UK. The Treasury estimates the move will save the average woman nearly £40 over her lifetime, with a cut of 7p on a pack of 20 tampons and 5p on 12 pads.

Around 2 million people rely on notes and coins for everyday spending and, in 2018, 50 million adults used cash machines, with 87 per cent of them using one at least once a month.

A report late last year, by the consumer group Which?, warned that, without action, “cash as we know it will cease to exist in just two years”.

“In the past two years, 9,000 free cash machines and 1,200 bank branches have vanished,” it said.

“We're even being charged a fee to access our own money at 25 per cent of the cash machines that remain.”

However, few details were released about the action ministers might take, following talks with the banking and retail industries to start soon.

Government sources acknowledged they were at “the start of the process” – and dampened suggestions that cash machines could be brought back in “cash deserts” without charges to withdraw money.

One area being looked at is new responsibilities on banks to ensure their customers can access cash, even as branches close down.

The Treasury also wants the banks to create a new system for moving money around the country, so cash remains accessible for those who use it every day.

International examples which the UK could take inspiration from include Sweden, which legislated to require large banks to provide their customers with facilities for withdrawing cash.

The finance industry has set up various schemes to plug gaps, including replacing protected cash dispensers where there is no free machine or Post Office counter within one kilometre.

It also recently set up a “request an ATM” service, allowing communities to directly ask for a machine to be installed in their area.

Mike Cherry, the chairman of the Federation of Small Businesses, said it was “open to measures”, provided “the financial incentives are in place”.

“What we can't have is a situation where small firms are left to foot the bill for the loss of ATMs because they're expected to provide cash without the right support,” he warned.

EU law prevented member states from reducing VAT on sanitary products below 5 per cent, but it is now set to be cut to zero rate on January 1, the first day Brussels’ laws no longer apply to the UK.

The Treasury estimates the move will save the average woman nearly £40 over her lifetime, with a cut of 7p on a pack of 20 tampons and 5p on 12 pads.