The government is facing the possibility of a second industry plastics bailout in the space of two years after the cost of packaging compliance fees skyrocketed.
The four UK governments have admitted they are considering mitigation, after changes to the way companies report their tonnages for reprocessed and exported packaging waste under the Packaging Recovery Notes (PRN) system led to mayhem.
Under UK packaging waste laws, all producers with a turnover over £2m who handle more than 50 tonnes of packaging a year must buy plastic PRNs, or certificates that verify the waste has been recycled or reprocessed, proportional to the amount of plastic packaging they put on the market.
However, since the beginning of this year, changes to how companies report their tonnages have led to a major shortage in the availability of PRNs and soaring costs. The costs associated with key materials such as plastic has in some cases more than trebled.
The changes saw reporting switched to a monthly basis rather than quarterly, with stricter requirements on accreditation and compliance, intended to counter concerns over lack of transparency in the PRN system and the risk of fraud.
However, sources told The Grocer the shake-up had instead led to a freeze in some major reprocessors’ ability to sell PRNs as they have not met new requirements.
“These changes and a delay in bringing in the reporting system meant there was an incomplete picture of PRN supply in the first half of the year and when we did get that, it showed a likely shortage of PRNs in key materials for packaging – in particular plastics, steel and wood,” a source told The Grocer.
“Given there is a limited supply, this pushed up prices particularly for plastics. Whereas £150 per tonne would have been a typical cost, manufacturers are now seeing £500-£550 per tonne and over. This could cost manufacturers millions of pounds this year, with some companies seeing upwards of 150% increase in PRN spend since last year.
“This is clearly a huge concern for food and drink manufacturers and comes at a time when businesses are already under significant financial strain, and we want to see action from Defra on this.”
A source of concern
In a statement sent to producers by all four governments, environment bosses acknowledge that the changes were a major source of concern for companies.
“Measures introduced this year to improve transparency and tackle fraud, and error are already having a positive impact helping to protect legitimate businesses and support the long-term success of producer responsibility arrangements,” it said.
“While these measures are having a positive impact, the four governments and regulators recognise concerns about the potential short-term effect on PRN availability during 2026.
“If evidence shows a material risk to meeting the 2026 producer recycling obligations, the government, in collaboration with the regulators, may consider appropriate mitigating actions while maintaining the principles of producer responsibility.”
The PRN financial crisis comes after The Treasury was forced to step in in an extraordinary bailout last year after a huge shortfall in the expected income from its first full year of the extended producer responsibility (EPR) tax.
It also comes with a consultation looming in the autumn over potential changes to the PRN system, with widespread calls from food and drink companies for the system to be axed or simplified by rolling the obligations in within EPR.
Retail bosses and suppliers hope the government will agree in the autumn budget to take action to simplify what they call the “triple whammy” of costs facing producers through EPR, PRNs and the plastic packaging tax.
“In the short term, intervening to avoid millions of pounds of avoidable additional costs this year through skyrocketing PRN costs would be a positive move from the government,” added the source
“But this situation is also symptomatic of an overly complex and too expensive packaging system in the UK, where we have seen the layering of new regulations adding cost and complexity on top of older legislation, with multiple reporting requirements, so that companies are now taxed three times for using packaging, through plastic packaging tax, PRN costs and EPR fees.”
Balwinder Dhoot, director of sustainability and growth at the FDF, told The Grocer: “The dramatic increase in the cost of PRNs is very concerning for manufacturers. Particularly as businesses are already contending with the financial impacts of the war in Iran and extreme weather across Europe this summer, as well as other challenges around EPR this year.
“It’s positive that Defra has acknowledged the challenge. Government needs to take a serious look at the PRN system, as this level of price volatility is a major problem for businesses who are facing unpredictable costs they hadn’t budgeted for, to the tune of millions of pounds. Given all the other financial pressures on the industry right now, unless this issue is tackled head-on, it will ultimately mean shoppers paying more at the till.”
Another source told The Grocer that Defra had been repeatedly warned that the changes to accreditation risked causing a spike in costs and instability in the PRN market but had ignored the threat.
“The data situation with PRNs has been a shambles all year,” they said. “In fact it’s worse than shambolic: for large parts of the year there hasn’t been any data and even when there has been it’s been full of holes.
“It defies belief that this has been allowed to happen, especially a year after the EPR bailout.
“Whether this results in another financial bailout, this time with PRNs or changes to the reporting requirements, the fact is it was all avoidable and simple adds to the impression that Defra doesn’t know what it’s doing.”
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