Packaging tax: can anything be done about Defra’s eye-watering EPR recycling fees?

The dust is still settling after Defra published figures last week estimating the huge bills companies will face under its new extended producer responsibility (EPR) plans.

Officials have spent the past few days locked in talks with suppliers, attempting to explain how they got to the “eye-watering” figures, and reassuring a sceptical industry the fees will be used to turbo boost the effectiveness of collections rather than lost in a local government money pit.

But with industry bosses predicting major redundancies due to the soaring costs, Defra has seemingly already backtracked on some of its calculations, amid pressure to do more to ease the burden.

So what are the costs? Why do the calculations differ so much from previous estimates? And are they set in stone?

In many cases, Defra’s figures are higher than the so-called PackFlow report produced by Valpak in 2022, which was the previous best assessment of what to expect.

But with invoices not due to land until October next year, Defra is at pains to point out its estimates are likely to change.

Based chiefly on estimates from Wrap dating back to 2017, Defra set out indicative fees across the raft of different materials covered, broken down to lower, intermediate and higher estimates, ranging from £130 to £655 per tonne, depending on material type.

Its worst-case scenario, The Grocer understands, assumes less effective collection than PackFlow’s, which has led to the higher predicted fees.

But it has admitted the estimates are hugely uncertain given “volatility” in resale prices, variation in cost of materials and the uncertainty of collection costs. Indeed, Defra has already told businesses it will reconsider how it calculates the cost for glass, where companies were left stunned by an estimate of up to £330/tonne.

British Glass has called for the rollout to be delayed to allow an “urgent and crucial reassessment”, while the British Beer & Pub Association (BBPA) claims the charges could slap 7p on the cost of a bottle of beer, or £200m a year in total.

Pev Manners, MD at drinks producer Belvoir Farm, predicts an “extinction event” for SMEs.

Methodology questions

Defra’s apparent climbdown poses questions for its entire methodology. Its estimates for glass, unlike other categories, were calculated using a trial version of its local authority packaging costs and performance model – which it intends to use to calculate the final fees for all materials.

Glass was hit hard because it is heavy, and Defra used weight as a key metric, whereas it has now suggested it could switch to using volume.

How can Defra hope to keep pace with its planned timetable, with new figures due out within weeks, if it is to start chopping and changing the entire basis for its calculations, ask experts.

“When we first started talking to companies about the scale of these costs their reaction was disbelief,” says Valpak CEO Steve Gough. “Defra’s figures are higher even than we imagined and the range of possible fees they have put out is enormous. But at least what putting these figures out has done is make the whole thing very real. The train is coming down the track. This is a crystallising moment.”

Paul Vanston, CEO of the Industry Council for Packaging and the Environment (INCPEN) and a member of the government’s EPR Steering Group, adds: “The publication of these illustrative base fees is a good first step but the wide ranges across the packaging materials mean that accurate impacts on actual costs to individual businesses are challenging.

“Businesses need more accurate figures to help determine budgets, so the September figures really are keenly awaited.”

Read more:

• Defra accused of having £500m black hole in EPR finances

• How Unilever is redrawing its packaging strategy

• The most sustainable packaging material? The answer is complicated

In time, Defra hopes costs will be based on solid data from the online portal it is setting up, rather than estimates, while the fees scale will be set by a scheme administrator, currently operating in shadow form via a group including key industry figures such as Vanston.

As Defra also explained to firms this week, later fees will be modulated to incentivise the least environmentally harmful packaging.

But that seems a long way off, with new Defra figures this week showing nearly 2,000 large companies enrolled in the scheme have still failed to start reporting data, despite the May 2024 deadline, while enforcement activity is said to be well underway.

Meanwhile, with Defra also stressing on numerous occasions that the EPR rollout is subject to a spending review by Chancellor Rachel Reeves, the government will be desperate to avoid suggestion of a new tax forcing up family food budgets, just as the cost of living crisis is showing signs of easing.

Defra says it expects 80% of the cost of EPR to be passed on to the consumer. But the prospect of a £1.8bn government packaging tax appearing on supplier invoices – and the final cost price paid by millions of consumers – is likely to set in motion many more heated debates as EPR gets closer.