It’s now less than 12 months until UK retailers face paying a new levy on plastic packaging, with this set to raise hundreds of millions in tax revenues. This money should be shared with retailers to help further improve recycling and sustainability.
UK Plastic Packaging Tax explained
From 1 April 2022, a new UK tax will be applied to plastic packaging containing less than 30% recycled content. This will see companies including manufacturers, importers and their business customers, such as retailers, paying a £200 per tonne tax rate on any plastic packaging or components that do not comply with the new recycled content stipulation. The only exemptions to this will be companies handling 10 tonnes of plastic packaging manufactured in or imported into the UK per annum.
The tax is being introduced by the government to provide an economic incentive for businesses to use recycled material in plastic packaging. The overall aim being to drive greater demand for packaging that has a lower environmental impact and to stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.
Whilst it’s extremely debatable whether a tax is the right approach to achieving these aims, there’s little doubt that these goals are absolutely the right way forward and are already being widely embraced by UK businesses. Many retailers are leading the charge when it comes to proactively reviewing operations and supply chains to reduce carbon emissions and improve sustainability. Do they – and other environmentally aware and responsible companies – really need a tax to stimulate change?
Given that there have already been several consultations on the Plastic Packaging Tax and its introduction was further ratified in a policy paper in March 2021, it seems futile to spend time questioning its appropriateness. The situation is unlikely to change, and it’d be more effective for retailers to review their current packaging strategies to determine the level of compliancy, as well as consideration for how any changes will deliver genuine environmental improvements along their supply chains.
This also raises important questions on how tax revenues will be used, and whether there’s opportunity for money to be reinvested in the retail sector to support recycling systems and sustainable innovation.
New tax revenues
Policy costings published as part of the Chancellor’s budget in March 2021 show that the Plastic Packaging Tax is expected to generate £235million in its first year from 2022 to 2023. It seems likely that a proportion of this tax revenue will go towards covering the costs of setting up and administering the Plastic Packaging Tax.
HMRC expects to incur one-off capital costs for developing a system to collect the new tax revenues, along with ongoing resource costs to monitor compliance and meet customer service needs. Figures published so far suggest that capital costs will range from £10m – £20m for developing a new computer system, with staffing costs at around £22m.
If expenses hit the top end of projections, HMRC will have to fund £42m of costs. This would leave £193m remaining from the £235m generated by the Plastic Packaging Tax in its first year. There is currently no clear indication of how this tax revenue will be spent.
As the new tax is being introduced as an ‘economic incentive’ for businesses to use more recycled plastic packaging, it would seem reasonable to suggest that the new revenues are reinvested in schemes that support this goal. The retail sector should be a key beneficiary of this, and tax revenues should be used to support UK retail infrastructure to be more sustainable and in adopting low-carbon technology. Whether it is bricks and mortar stores or growing ecommerce platforms, the sector is well positioned to continue to meet increased consumer demand for more sustainable solutions and to affect notable change that improves environmental performance.
Plastic Packaging Tax revenues could be reinvested in a number of ways. They could fund research and development to support more businesses in making the transition to packaging containing higher levels of recycled polymer content.
Similarly, grants could be made available to retailers to help drive investment in closed loop recycling systems. This concept strives towards the full recycling of products including packaging to avoid disposal and landfill. Enhancing closed loop recycling infrastructure in the UK would help government fulfil its aims of moving to a more resourceful and circular economy.
Tax revenues could also be used in match-funding style systems. This could encourage retailers to consider investing in packaging materials derived from completely renewable and ethical sources, and which are also recyclable. GreenPE, for example, is a thermoplastic resin made from sugar cane. It’s a water efficient crop and takes CO2 from the atmosphere during growing.
There’s also the possibility of looking beyond packaging and using Plastic Packaging Tax revenues to fund supply chain audits that drive innovation in new techniques and technologies that reduce carbon emissions.
Any of these options would, admittedly, require investment in creating and managing schemes. However, with the Plastic Packaging Tax expected to generate up to £905m by 2026, they don’t seem beyond the realms of possibility.
Revenues generated by the forthcoming Plastic Packaging Tax create a new opportunity to accelerate recycling and sustainability, and with retailers already leading the charge on this front, it seems logical to help fund their momentum.
Zoe Brimelow is brand director at packaging manufacturer DUO