Plastic packaging tax could increase plastic exports, warn experts

E&T has also heard concerns that the tax will not be paid back into the UK’s recycling system, with retailers warning that the added costs could be passed on to consumers, exacerbating the cost-of-living crisis.

From 1 April, businesses manufacturing or importing ten tonnes or more a year of plastic packaging that contains less than 30 per cent recycled plastic will be taxed at £200 per tonne.

Big supermarkets and other retailers that produce and sell own-brand products will need to pay the tax. Imports of packaging which already contains goods, such as plastic bottles filled with drinks or plastic packaging around goods, will also be subject to the tax.

In Europe, the EU Commission has already introduced a plastic packaging levy on Member States at a rate of €800/tonne based on the amount of plastic packaging placed on their own markets. The aim is to encourage EU nations to introduce their own plastic taxes to fund their liability to the EU.

Italy is introducing a tax of €450 per tonne on virgin plastic used in manufacture or importation of single-use plastic which has been deferred to 1 January 2023. Spain has also proposed a tax of €450 per tonne on non-reusable plastic packaging.

Setting out its rationale for the UK tax, the Treasury said it could help to divert plastics from landfill or incineration, and drive recycling technologies within the UK. Boosting domestic recycling capacity is seen as vital, with growing calls within the industry for a ban on waste exports.

However, Jacob Hayler, executive director of trade body the Environmental Services Association (ESA), told E&T that while the taxes were structured in a different way in the EU, the higher prices could create “a market distortion”.

“If you are a plastics reprocessor in the EU and the EU plastics tax means you can charge a higher price on the back end of your plant, it means you can afford to pay a higher price for the plastic bottles on the front end,” he explained.

Hayler added said ESA members were particularly mindful of the introduction of a deposit return system (DRS), which the government is currently consulting on. The DRS will work by charging anyone who buys a drink a small deposit for the bottle or can that it comes in. Consumers can then get this money back when they return the bottle for recycling.

“The point of it is to create this separated very pure, very clean stream of plastic, which is great for reprocessors, but the fear is, if EU reprocessors are able to afford higher prices because they are underpinned by a higher plastics tax, then there’s the risk that all of our lovely clean UK material could end up being exported and not prioritised for UK recycling,” said Hayler.

Steve Morgan, head of policy and infrastructure at plastics recycling member-based charity RECOUP, shared these concerns. He said recyclers might “push material out to Europe if there were higher commercial pools for putting recycled content back into packaging” on the continent.

While Morgan said some big firms and brands would want to keep their recycling in the UK for reputational reasons, he said “an environmental policy design fault” of the plastic tax meant the proceeds would not go towards boosting domestic recycling capacity.

The Treasury expects the plastic tax will generate proceeds in the region of £700m by 2025.

“This money is not going to come back into the system again to increase the recycling infrastructure, it is lost to the Treasury,” said Morgan, who predicts it will be at least ten years before the UK can recycle all of its own plastic.

The British Retail Consortium (BRC) said that because the proceeds would not be ring fenced, it was likely that the costs associated with the tax would be passed on through the supply chain and “may result in an indirect taxation on consumers”.

Nadiya Catel-Arutyunova, sustainability policy adviser at the BRC, said retailers were “working hard to mitigate against any impact on consumers, especially during the current cost-of-living crisis”.

She said there was “of course a risk in a competitive global market” that UK material could end up being exported and not prioritised for UK recycling.

“We would like to see more recycling in the UK with money ring fenced to boost domestic processing capabilities. Access to recycled material markets is not a level playing field across all materials given it depends on existing infrastructure – therefore putting some at a disadvantage.”

Some experts are also concerned about the cost of compliance on businesses with UK manufacturers, importers and purchasers of plastic packaging obligated to carry out due diligence checks.

Barbara Bell, environmental tax director at KPMG UK, told E&T: “The ‘joint and several liability’ provision is worrying many businesses right now. A failure to keep sufficient records, could lead to a business being held liable for tax unpaid by someone else in the supply chain.”

But Hayler said that because packaging itself forms a very small part of the total value of each product and weighs very little, “for a lot of items £200 a tonne is not actually enough to shift behaviour”. He is calling for the Treasury to increase the level of tax over time, “giving a clear long-term direction of travel”.

Hayler also thinks the UK will need a recycled content threshold of more like 50 per cent if it is to meet its recycling targets. “This would really help to strengthen and underpin the UK market,” he said.

A Treasury spokesperson said it would keep the threshold under review but that 30 per cent was “ambitious... while being achievable in the foreseeable future for many types of packaging. And while we keep all taxes under review, new environmental taxes are not typically introduced with an escalator.”

The Treasury added that it estimates the tax would lead to around 40 per cent more recycled plastic being used in packaging in 2022/23.