Next week, the government rolls out the extended producer responsibility scheme – a policy that will make around 8,000 businesses accountable for the cost of managing their packaging waste, currently estimated at between £1.5bn and £1.8bn each year.
In principle, it’s a positive step. Businesses that place waste on the market should be, at least in part, on the hook for managing it. Rumour has it the policy was designed with environmental intent. But the execution has been catastrophic.
In its current form, EPR not only risks pushing hundreds of SMEs over the edge – it actively incentivises environmentally damaging behaviour. Not good.
EPR shifts the cost of collecting and disposing of packaging from local councils to producers, and charges will vary, depending on the material. While there’s an ambition to link fees to recyclability, this hasn’t happened yet. Materials are charged a set rate by weight, meaning heavier materials like glass face fees up to seven times greater than lighter ones like plastic.
The tax kicks in on 1 April. The first bills arrive in October. All fees shared to date have been marked as “illustrative”.
Despite its years in development, most SMEs only heard about EPR in the past few months. One brand, which will face a bill expected to be more than £100k in the first year, knew nothing about it just a few days ago.
Those in the know are pointed to official guidance riddled with disclaimers warning businesses “not to rely on it for planning”. But if everything goes to plan, invoices will be coming in six months.
A lack of clarity
The reason so many are out of the loop is obvious: smaller businesses don’t have the time or money to engage with trade bodies or government, leaving them underrepresented in policy design and uninformed at execution.
We raised this with a government representative on a recent call, asking how they were informing affected businesses. The response: “It’s in our newsletter and we had a stand at a UK packaging trade show.”
When we suggested direct mailers could be sent out to those in scope, the response was jarring: “We don’t have time to pack 30,000 letters.”
The current EPR also punishes heavier materials inexorably.
In the last five years, many brands shifted from plastic to glass, often for environmental reasons, as glass is infinitely recyclable and has a much higher recycling rate in the UK.
Now those brands face EPR bills over seven times what they would have paid using plastic. These are not small numbers. One business I spoke to turns over £3.5m – its annual bill is expected to be £180k. That’s a 5% tax on sales.
The incentives are clear: switch to cheap Chinese glass or revert to plastic. Neither is a good outcome for the UK or, I would argue, the planet.
Devastating for SMEs
EPR is designed for industry giants, but devastating for SMEs. Most small businesses run on low single-digit or even negative margins well into their eight-figure turnover. In today’s environment, they’re already under pressure and without time to adapt, this tax will be terminal for many.
While it’s been in development for a while, EPR belongs to the same family of policy missteps that result from avoiding the “big three” (VAT, income tax, corporation tax). Just as NI hikes catastrophically hit low-margin, labour-heavy sectors, this will hit smaller CPG brands.
For loss-making or breakeven businesses, it’s effectively an infinite-rate corporation tax.
We support this tax in principle because the UK’s waste infrastructure clearly needs investment. But EPR funds currently aren’t ringfenced for it and the admin burden is high. What we’re left with is a complex, resource-heavy tax, that’s set to disappear into the general pot.
There is, however, still hope.
A force for good
While the law has already been passed, there’s still time to take action which could help avoid unnecessary damage. A growing group of SMEs has come together in recent weeks to push for three urgent reforms:
- Phase in fees for businesses under £36m turnover.
The year one fees could be 100% subsidised, with year two dropping to a 50% subsidy and year three, 25%. Covering 80% of affected businesses, this would cost the Treasury £150m of the £1.8bn expected to be raised in year one. Crucially, it wouldn’t impact council funding at this stage, as EPR fees are initially a top-up, not a replacement. - Ringfence EPR revenue for UK recycling.
Without this, the system loses legitimacy and impact, and becomes, quite frankly, madness. - Redesign the pricing model across materials.
The current structure disproportionately penalises heavier materials like glass. A more balanced approach is essential to avoid environmentally questionable and economically unproductive shifts in UK supply chains.
EPR could be a force for good. But without reform, it will be terminal for hundreds of small businesses and do little to achieve its environmental aims.
With the reforms above, the UK SME community can not only survive, it can continue to lead the shift to a more sustainable future.
Like many before us, we pray – for everyone’s sake – Rachel Reeves is listening.
Stu Macdonald is the founder of ManiLife
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