Dump the plastic, and gi' us yer readies

American Express? Mondex? Forgeddit! Cash is making a comeback, thanks to poverty, a booming black economy and even the heatwave

Cash has always been the most common method of payment, but it hasn't been as popular as it is now since the loadsamoney Eighties boom. According to figures published by the Bank of England this week, the much- vaunted cashless economy is still a long way off.

Last year, cash accounted for just over 16 million out of a total of 26 million recorded transactions. The number of cash payments had been declining slowly over the years, but there are signs that this year is bucking the trend. Demand for notes and coins has grown faster than consumer spending this year, suggesting that their share of total payments has climbed again.

The fact that pounds 100m a week is being spent on National Lottery tickets - not, on the whole, paid for by credit card - is one of the most important reasons for the surge in cash in circulation. It is another manifestation of the huge impact the lottery has had on the economy. But national gambling fever is not the only explanation.

Most important is the fact that inflation and interest rates are low. In the bad old high inflation days, it was too expensive to hold cash in your wallet instead of on deposit in a bank or building society. Now, the hope that your building society might be taken over and bring a free share windfall is the only reason to keep money in a standard deposit account.

The spread of cash dispenser machines and arrival of the debit card mean it is easier to get your hands on new, crisp notes. According to Apacs, the umbrella body for the different means of payment, withdrawals from hole-in-the-wall machines rose from 496 million in 1986 to 1.3 billion last year. The number of machines provided by the high-street banks has climbed from 8,625 nine years ago to 14,906 last year, part of the banks' programme of replacing costly human staff with cheaper machines.

Since their launch in 1988, debit cards, which offer the option of cash- back in many shops, account for almost as many purchases as credit cards. Figures for cash withdrawals on debit cards are not yet available

Patterns of spending have also switched to the kinds of goods and services for which people are more likely to pay in cash. Last month's big rise in demand for cash was probably partly due to spending on ice-lollies and cold drinks during the heatwave. Bottles of Evian have become as big a feature on commuter trains to London as the mobile phone and electronic organiser.

Although total sales of retail goods from bottled water to washing machines have barely increased this year, purchases of cash-intensive services have grown more rapidly. These include meals in restaurants, spending on entertainments and so on.

Part of the reason for this is the boom in tourism. The weak pound has kept Britons at home and brought foreigners flooding in. From January to April 1995 the number of foreign visitors was 6.2 million, 11 per cent higher than in the same period last year. The amount tourists spent rose by nearly a fifth to pounds 2.8bn.

Finally, and most difficult to quantify isthe effect of unemployment, poverty and the "grey" or unofficial economy. Low-earners are more likely to use cash than cheques or plastic.

The Inland Revenue, which has a keen interest in monitoring the unofficial, tax-evading economy, reckons it grows in line with measured GDP and is equivalent in size to about 6-8 per cent of the total economy. Although there is a tax inspector at a car boot sale near you, the IR cannot put a figure on the scale of cash transactions in the unofficial economy.

Apart from anecdotal evidence that cash payments are becoming the norm everywhere, one other piece of evidence is the sharp rise in income inequality since the mid-Eighties. A recent Joseph Rowntree Foundation study reported that the number of people on below-average income had risen from about 10 per cent of the population in the early Eighties to above 20 per cent by the early Nineties. Not all these people will operate outside the official economy, but they are less likely to pay by Visa.

What might halt the return of cash? Higher interest rates would do it. So might the spread of forgeries which are making many shops reluctant to accept pounds 20 notes and higher denominations.

In future, we will perhaps opt for electronic cash, whether it takes the form of the new Mondex card, on trial in Swindon, or payment via the Internet. It wouldn't go down well at a car boot sale, but a cash card that plugged straight into a National Lottery terminal could be an instant winner.