Plastic packaging tax: what does it mean for UK grocery?

The plastic packaging tax comes into force today (1 April 2022) in a bid to encourage the use of more recycled plastic in the UK.

It will apply a £200 per tonne levy on all plastic packaging manufactured in, or imported into, the UK that contains less than 30% recycled plastic.  

The tax will complement packaging producer responsibility regulations and “encourage businesses to design and use plastic packaging that is easier to recycle and discourage the creation of plastic packaging which is difficult to recycle”, the government says.

But according to a survey by YouGov on behalf of resource management firm Veolia, 77% of British retail and manufacturing businesses are still unaware of the impedening tax. So, what will it mean for UK businesses, shoppers, and the UK’s net zero ambitions?

What businesses will be affected? 

The plastic packaging tax will apply to UK businesses that manufacture plastic packaging or import packaged goods into the UK. However, small operators who import or manufacture less than 10 tonnes per year will be exempt.

The responsibility for paying the tax will fall on the business that made the last ‘substantial modification’ to the plastic packaging or component.

However, if the last substantial modification is made at the point where empty packaging is filled with goods or products, liability for the tax will fall on the business that made the prior substantial modification.

If a business imports plastic packaging components that have already undergone their last substantial modification, they will be liable for the tax.

To help companies ascertain whether or not their products qualify for the plastics packaging tax, the British Plastics Federation (BPF) has released a free online tool built upon knowledge provided by the consultancy firm EY. 

What is a ‘substantial modification’ to packaging?

According to the government guidance, a ‘substantial modification’ is a manufacturing process that changes the packaging components’ features, such as its shape, structure, thickness or weight.

This includes extrusion, forming, layering and laminating, moulding and printing. However, blowing, cutting, labelling and sealing would not be deemed ‘substantial modifications’

What has been defined as ‘plastic’ under the tax?

The plastic packaging tax is chargeable for each individual finished packaging component. For the purpose of the tax, the government has defined ‘plastic’ as a polymer material to which additives or substances may have been added – including biodegradable, compostable and oxo-degradable plastics.

Cellulose-based polymers that haven’t been chemically modified, such as viscose, will not be treated as plastic for the purpose of the tax. However, other cellulose-based materials which are chemically modified, such as cellulose acetate, will be considered plastic.

If a plastic packaging component includes multiple materials but contains more plastic by weight than any other substance, it will be considered plastic packaging for the purposes of the tax.

Plastic packaging components containing 30% or more recycled plastic will not be chargeable for the tax. However, they will still count towards the 10-tonne threshold for packaging manufactured or imported per year; so, businesses must still keep records of it.

What products will be affected?

The plastic packaging tax will be applied to packaging used for the “containment, protection, handling, delivery or presentation of goods”.

This includes plastic packaging used in the supply chain, such as single-use bottles, bottle caps, labels, trays, pots, film, shrink wrap, flexible food pouches, windows on sandwich packets, salad bags, crisp packets and biscuit wrappers.

It will also be applied to plastic packaging designed as single-use consumer packaging, such as plastic bags, bin liners, sandwich bags, nappy sacks, disposable cups and sticky tape.

Reuseable items such as reusable bottles, lunchboxes, plastic cutlery, bags for life, storage boxes, mop buckets and measuring caps fall outside of the scope of the tax, as do items such as nappies, syringes, vials for laboratory use, tampon applicators and urine bags.

HMRC has also created a decision tree to help businesses determine whether packaging falls under the remit of the tax.

What are the reporting requirements?

Once a business reaches the 10-tonne threshold it must register with HMRC, report its plastic packaging data and pay the tax quarterly.

However, HMRC has advised even businesses that do not meet the threshold should keep records to demonstrate this.

According to guidance from compliance firm Clarity Environmental, key records should include:

• The total amount and weight of materials used to manufacture plastic packaging (excluding packaging used to transport imported foods).
• Data and calculations used to determine if a packaging component is ‘plastic’, and how much recycled plastic it contains.
• The weight of any exempted plastic packaging and the reasons for the exemption.
• The total weight of plastic packaging being exported, and therefore exempted from the tax.

What are the implications for grocery?

The plastic packaging tax was intended primarily to change behaviour. However, the FDF has warned it will “heavily impact the food and drink industry and add to the ever-growing list of challenges currently facing the sector”.

One of the biggest challenges for grocery is the “dire shortage of supply” of food-grade recycled polymers, which is limiting the ability of producers to include 30% recycled content in their packaging. Indeed, prices for food-grade recycled plastic have shot up by 70% over the past year, The Grocer understands. 

In its response to the government consultation on the tax, environmental compliance firm Valpak warned 83% of supermarket plastic packaging was food contact and “therefore restricted in its ability to incorporate recycled content”. 

What’s more, approximately 34% of grocery plastic packaging is food contact and not in either rigid PET or natural HDPE bottles (which have the ability to include recycled content), so “would not currently be able to contain any recycled content unless producers changed material or new technology or material standards were implemented” Valpak said.

“Overall, this represents approximately 14% of all plastic packaging, or around 321k tonnes,” it warned.

What are the implications for consumers?

With recycled polymers currently so expensive, it’s inevitable the tax will add cost to the supply chain. Businesses face either paying the tax itself or paying a big premium for recycled content – and the administrative burden of reporting to HMRC will also be significant, experts warn.

Although the tax is aimed at businesses that manufacture or import plastic packaging, it’s inevitable that some of these additional costs will eventually be passed on to consumers –especially since retailers and suppliers also face “sky-rocketing” costs under government plans to make them foot the bill for packaging waste.

Industry sources estimate the cost to UK consumers of the plastic tax being passed on in the form of higher prices could be as high as £300m a year.

Will the tax help the UK achieve its net zero target?

If all plastic packaging included 30% recycled content, the UK would save up to 2.89 million tonnes of carbon emissions every year.

“The Plastic Packaging Tax that comes in today is a crucial and necessary prompt for organisations to start taking a circular approach to their business processes,” says Stephen Jamieson, global head of circular economy solutions at SAP.

“Some two million tonnes of plastic packaging is placed on the market every year, and a staggering half of this doesn’t have at least 30% recycled content. This means that 91% of plastic just sits in landfills rather than being recycled.”

However, with prices for food-grade recycled plastic currently so high, some businesses are considering shouldering the tax rather than switching to more expensive packaging that contains 30% or more recycled material, The Grocer understands.

That would undermine the ultimate aim of the tax, which is to increase the uptake of recycled materials in plastic packaging.

A more effective approach, according to Veolia, would be an ‘escalator’ applied to both the levy (£200 per tonne) and threshold (30%) “to increase demand for recycled materials over time and spur on innovation and investment in recycling to ensure adoption and market acceptance of new or improved technologies (e.g. those able to recycle food-grade PP/PE).” 

Valpak was also in favour of a phased approach to give more time for the recycling infrastructure to increase in capacity. In its consultation response, it suggested the government should consider “introducing the tax at a lower level than the proposed 30% recycled content and gradually increasing this over a period of years”. 

The tax revenue should then “be ring-fenced to invest in chemical recycling infrastructure”, it suggested.

However, despite widespread criticism of its approach, the government – which is reportedly planning to water down its Extended Producer Responsibility (EPR) proposals amid soaring food prices – is pressing ahead with a single-threshold plastic packaging tax. 

So, any businesses that aren’t yet familiar with the requirements would be advised to consider how the tax might affect their business, either directly or indirectly, and act quickly to ensure they aren’t caught out