The Treasury’s spending watchdog has changed the definition of the new extended producer responsibility fees that come into force from today to a tax, with Defra admitting the scheme will not materially increase local authority recycling rates in the next five years.
Meanwhile, the watchdog has also forecast the cost of EPR will rise by £200m from the government’s previous estimate by the end of the Parliament.
Documents published by the Office for Budget Responsibility (OBR) to accompany Chancellor Rachel Reeves’ spring statement reveal that while the EPR scheme was previously treated as a fee to be received and spent within government department expenditure limits, it was now being treated as a tax and would boost the Treasury’s tax forecasts.
Meanwhile, while figures in an impact assessment published last year by Defra estimated the fees of EPR would cost the industry around £1.4bn, the OBR’s document says the amount will rise to “an average of £1.6bn a year between 2025-26 and 2029-30”.
“The extended producer responsibility is a scheme which requires packaging producers to pay a fee for the packaging they supply to or import into the UK market, effectively compensating local authorities for the cost of packaging waste management,” says the OBR statement.
“We previously captured EPR revenues as a fee received and spent within DEL (Departmental Expenditure Limit).
“So the new treatment of EPR revenues as a tax boosts receipts and decreases DEL fees by an equal and offsetting amount.
It adds: “While the policy was announced in 2021, there was previously not enough detail on the fees for this to be reflected as a tax in our receipts forecast.
“It will come into effect from April 2025 and is estimated to raise on average £1.6bn a year between 2025-26 and 2029-30. The costing includes only a very small behavioural response to the policy from packaging producers and local authorities.”
The watchdog adds that Defra has estimated EPR is “unlikely to have a material impact on rates of recycling or packaging waste volumes in the next five years”.
Deadline day
Today is the deadline for both large and medium-sized companies to be covered by EPR to register for the fees or face the possibility of court actions and fines by the Environment Agency, with the first invoices for the scheme due to be paid in October.
A series of industry bodies have called for the scheme to be delayed because of the huge impact of the regulation against an already tough financial backdrop and fears it will lead to a rise in inflation.
However, the OBR’s admission that EPR is a tax and that it is set to rise has increased anger.
A source told The Grocer: “The government is now clearly treating EPR as a tax despite previous denials and moreover these estimates push the cost up significantly from the previous estimate.
“It begs the question why will council costs increase by so much and what is driving this increase, and more than ever shows that we need measures to ringfence this spending.”
The WSTA today repeated its calls for EPR to be delayed.
With producers facing forecast EPR fees for glass of £240 per tonne it said the tax had become an “unwelcome shock” after earlier estimates were much lower, at around £110 to £215 a tonne.
“EPR is an inflationary new tax that’s being implemented before it’s properly finished and shares a similar fiendish complexity with the big recent hikes in wine duty,” said Laithwaites CEO David Gates.
“Combine them both with the Chancellor’s increase in National Insurance and our family wine business is left facing an extra £10m in taxes year on year – a body blow that leaves us with little choice but to put up prices, look hard at the size of our workforce, postpone or cancel Capex projects and consider prioritising our other markets for investment.”
The BRC’s director of food, Andrew Opie, added: ”We have said for a long time, as consumers will ultimately pay the majority of the charge, Government has a responsibility to demonstrate to them it is both value for money and will deliver the increase in recycling they assume.”
Jim Bligh, director of corporate affairs at the FDF, said: “This money is a levy for investment in recycling, not a tax to plug shortfalls in council budgets.
“The government must use these fees to turbocharge investment in the UK’s recycling infrastructure.
“It also must be used to support local authorities to improve their recycling performance, so costs don’t creep up in coming years.
“Businesses and consumers will be paying for EPR, so deserve to see real change in the recycling system, rather than the flatlining rates we currently have.”
A Defra spokesman said: “We are committed to cracking down on waste and boosting recycling, with extended producer responsibility for packaging being an important pillar in our packaging reforms, which together will increase recycling rates from around 42% now to over 55% by 2035.
“Revenue from packaging extended producer responsibility will be distributed to local authorities directly by PackUK, with funding used to deliver improved waste collection services for their communities.”
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