The Treasury ordered Defra to include “full recovery” for the first year of the government’s new EPR packaging tax in its budget figures, even though they were warned it was an unachievable goal, The Grocer can exclusively reveal.
The astonishing claim comes as EPR faced a major crisis this week. Its governance body, PackUK, admitted it may have to reissue bills to companies, with higher invoices, as it faces a major financial shortfall to fund local authority recycling services.
However, senior sources told The Grocer that Treasury bosses had been warned it was an “impossible task” for EPR to balance the books in the first year, because of the high likelihood of appeals and companies resubmitting their figures as the year went on.
“This all came up in talks with the Treasury in January of last year when the government carried out a spending review ahead of the spring budget,” one source told The Grocer.
“At the time there was a lot of hype around departments closing the financial gap that Rachel Reeves was facing and certain departments, including Defra, whose budget were not protected by the government, were very much coming under the cosh.
The source added: “This idea of full recovery was put in [the budget] to basically close the gap before the spending review was done.
“It was just a fix to make this look better than they really were.
“The fact that this was an impossible ask was strongly pointed out to the Treasury at the time, but they insisted on its going ahead. They were basically kicking the can down the road.
“It was a fudge. They were basically wanting the figures to look better than they really were.”
After calculations showed the money raised from the tax had fallen tens of millions short, PackUK summoned suppliers to an emergency call last week to inform them that invoices may have to be reissued, leading to uproar from food and drink companies and packaging bosses.
Yesterday, PackUK strategy director Esther Carter told the Birmingham Packaging Innovations conference, attended by hundreds of food companies and packaging bosses: “What has not always been clear to people is that PackUK is required to balance the books at the end of each year.”
However, the source told The Grocer that as well as The Treasury, PackUK had questions to answer as to why it did not sound the alarm earlier over the black hole in the finances.
“I’m astonished that they didn’t see it and say this was an impossible ask.
“They were always going to be working on an unachievable target because there were always going to be appeals and there were always going to be companies resubmitting their figures as the year went.”
Sources now fear that the funding shortfall facing EPR may jeopardise plans for the industry to be handed responsibility for running large parts of the operation, which had previously been promised by Defra.
“I think EPR is now facing a major crisis and my fear is that this could really damage the plans for it to be run by the industry,” said the source. “Yet this all stems from the Treasury refusing to listen when they were told more than a year ago that this would happen.”
The new claims over the EPR fiasco come after the government was accused of rowing back from promises to “get out of the way” and let the industry run it.
Carter told yesterday’s event it would be “multiple years” before powers were delegated to the producer-run organisation (PRO) that is set to be appointed in the next month.
Industry sources said the comments were in stark contrast to the promises by Defra and PackUK at another major packaging event held in October last year.
At the time, former Defra circular economy director Emma Bourne confirmed that Defra was pushing ahead with plans to hand over the vast majority of the function of PackUK to the PRO. PackUK CEO Jeremy Blake compared himself to a “turkey voting for Christmas” as he admitted almost all of its powers would be swept up by the industry-run body.
However, Carter appeared to signal a very different strategy, while confirming that PackUK was on track to appoint the PRO in March,
“Over time, certain responsibilities that PackUK has been responsible for to date will be delegated for that PRO to lead whilst the actual movement of money, or the sovereign functions, will be retained,” she told delegates at the Packaging Innovations conference.
“The PRO will take on an increasing amount of responsibility and I would emphasise that this will happen as the result of increasing delegation across multiple years and under a very strict governance framework.”
Sources told The Grocer the language from PackUK was a “major change in tone” compared with its message in the autumn.
“This was as far as it gets from the remarks about turkeys voting for Christmas,” said one source.
PackUK is weighing up several bids to run the PRO, with a bid drawn up by the FDF and supported by powerful bodies including the BRC and Incpen having been widely regarded as the favourite.
However, it faces opposition from a bid led by Valpak, whose ‘PackFlow’ data calculations have been used as the most reliable source of evidence in the run-up to the EPR launch. It has been less critical of local authorities and less vocal about the need for ringfencing of the money raised than its rival.
A coalition of packaging schemes has also submitted a bid to run the PRO.
The Treasury and Defra have been asked for comment.
No comments yet