How New UK Packaging Taxes Could Affect Prices and Recycling Efforts

A new packaging tax aimed at funding recycling in the UK has sparked concerns among businesses, particularly in industries that rely on glass packaging. The Extended Producer Responsibility (EPR) for packaging, which will come into effect next year, shifts the cost of household recycling from local councils to companies. While the aim is to boost recycling and reduce waste, companies are warning that these new taxes could lead to higher prices for everyday goods like soft drinks, beer, kitchen appliances, and more.

What is the EPR, and Why is it Causing Concern?

The EPR is part of the UK’s move toward a “circular economy,” a system designed to minimise waste and make recycling easier. Companies will now have to pay for the cost of recycling the packaging materials they use.

The Department for Environment, Food and Rural Affairs (Defra) has estimated that these costs could range dramatically, especially for glass. Pev Manners, managing director of Belvoir Farm, which makes cordial, said that the proposed fees for glass are “nuts,” warning that the levy would wipe out their profits unless they pass the extra costs onto consumers.

For companies like Belvoir Farm, the tax could mean adding 25p to the price of a bottle of elderflower cordial, a 10% price increase that could discourage consumers. Manners highlighted that the company, which turned over £21 million last year and made £900,000 in profit, faces £850,000 in EPR costs next year.

Other businesses in the drinks industry, including Fentimans, which produces ginger beer, have also expressed concern. The CEO of Fentimans, Ian Bray, said that at the highest end of the estimated EPR cost, they would need to add 50p to a 750ml bottle, potentially wiping out their profits as well.

Impacts on Inflation and Consumer Costs

Will Jones, chief operating officer of the British Home Enhancement Trade Association, which represents suppliers of DIY, garden, housewares, and small electrical goods, also warned that producers will struggle to absorb these new costs. The result? Price hikes on a wide range of consumer goods. This comes at a time when inflation is already a concern for UK consumers.

Despite this, official estimates suggest the new tax will only have a modest impact on inflation, potentially increasing it by 0.04% to 0.09%. For consumers, this could mean an additional cost of less than £1 per week per household.

However, these estimates assume companies won’t take other steps to cut costs, such as reducing product quality or cutting jobs, which could have broader economic consequences.

A New Standard for Recycling

While the immediate focus is on the EPR’s cost, it’s part of a bigger effort to standardize recycling across the UK. By 2026, councils will be required to recycle a standard set of items, creating a more consistent system. At the same time, packaging that is easier to recycle will be cheaper for companies to use, encouraging producers to design packaging with recyclability in mind.

Lee Marshall, policy director at the Chartered Institution of Wastes Management, argues that the policy is a positive step toward reducing the environmental burden of packaging. Producers, not local authorities, will now bear the cost of recycling, and the new system should result in more packaging being recycled.

A Success Story in the Plastic Packaging Tax

The UK’s Plastic Packaging Tax (PPT), introduced in April 2022, is already showing positive environmental results. The PPT applies to plastic packaging that doesn’t contain at least 30% recycled material, and it has driven companies to increase the use of recycled plastic in their products. While the amount of plastic packaging manufactured and imported into the UK has dropped, the share that contains 30% or more recycled plastic has increased from 37% to 46% in the past year.

Despite some initial concerns about its economic impact, businesses are beginning to adapt. The PPT is encouraging companies to shift toward more environmentally friendly practices, but it has also led to changes in how businesses manage their supply chains to avoid the tax.

The Bigger Picture

The new EPR and the existing PPT are part of a broader trend of using taxes to drive environmental change. While these policies aim to reduce waste and increase recycling, they also present challenges for businesses. Higher costs for packaging materials, especially glass, are likely to be passed on to consumers, contributing to price increases across a range of goods. However, these measures are expected to have only a small impact on inflation in the short term. In the long term, they could help transform the UK into a more sustainable, circular economy.

Glossary of Key Economic Terms

• Circular Economy: An economic system aimed at minimizing waste and making the most of resources by reusing and recycling materials.
• Consumer Price Index (CPI): A measure that examines the average change in prices paid by consumers for goods and services over time.
• Deposit Return Scheme (DRS): A recycling program where consumers pay a small deposit on products like bottles and cans, which is refunded when they return the packaging for recycling.
• Extended Producer Responsibility (EPR): A policy approach where producers are given significant responsibility for the treatment or disposal of post-consumer products.
• Inflation: The rate at which the general level of prices for goods and services is rising, eroding purchasing power.
• Plastic Packaging Tax (PPT): A tax on plastic packaging that does not contain at least 30% recycled material, aimed at reducing plastic waste.
• Recycling: The process of converting waste materials into new materials and objects to prevent the waste of potentially useful resources.

Retrieval Questions

1. What is the Extended Producer Responsibility (EPR) policy, and how does it affect businesses?
2. How might the EPR increase the price of everyday goods like soft drinks and small appliances?
3. What is the main environmental goal of the Plastic Packaging Tax (PPT)?
4. How is the UK government planning to standardize recycling across the country by 2026?
5. What impact is the EPR expected to have on inflation, according to official estimates?

This article highlights how government policies like the EPR and PPT aim to reduce waste and encourage recycling, but also how these policies may have economic consequences, including price increases for consumers and potential challenges for businesses.