Supermarkets and drinks manufacturers have written to the Treasury and Defra urging them to reconsider the decision to apply VAT to deposit return schemes when they launch across the UK.
The Grocer reevaled in March last year that businesses were warning the system could be in effect “killed at birth” by the decision to slap VAT on top of 20p deposits, which risked leading to higher prices for cash-strapped shoppers.
In a letter to No 11 and environment ministers, a raft of trade bodies representing drinks manufacturers and retailers warned if VAT was applied, an estimated £185m stood to be lost through unredeemed deposits in the first year of the scheme alone, which would drive up prices for consumers already facing a cost of living crisis.
The UK’s first deposit return scheme is due to go live in Scotland in August 2023, while schemes in England, Wales and Northern Ireland are due to follow in 2024.
Circularity Scotland, the appointed scheme administrator representing major drinks companies and retailers, last year employed accountants Deloitte to help draw up evidence against the ruling by the HMRC.
The lastest modelling suggests the schemes proposed for the UK would see producers lose just over 3p per container that goes unredeemed. Factoring in the estimated 28 billion containers on the UK market, that would lead to an estimated £184.8m investment diverted from the schemes proposed both for Scotland and separately for England, Wales and Northern Ireland through unredeemed deposits (based on an 80% return rate) in the first year after the schemes go live.
The letter, signed by the BSDA, FDF, ACS, BRC, Natural Source Waters Association and BBPA, states: “The deposit return scheme is the cornerstone of the government’s ambitions to reduce carbon and create a circular economy in the UK, and our industries are entirely committed to ensuring its success. However, by applying VAT to deposits, the government is diverting essential investment in the scheme whilst imposing unnecessarily high costs on the producers and retailers who partake, risking its operational success.”
BSDA director general Gavin Partington added: “While we share the UK government’s ambition to introduce a deposit return scheme, applying VAT to the deposit collected risks jeopardising the success of a landmark environmental policy.
“This makes zero sense and needs to change. We are calling on the UK government to reverse its decision to apply VAT to the deposit fee while there’s still time.”