How the new plastic packaging tax could impact business

As businesses prepare for a tax on plastic packaging, there are concerns that the government has done too little to stem the tide on pollution

All tax is political, especially a new tax. It tends to create winners and losers, at home, in business and on polling day. So, with less than a year to go before the plastic packaging tax (PPT) comes into force in the UK, the mood in this market matters – and it is mixed.

From April 2022, a new £200-per-tonne tax will apply to plastic packaging containing less than 30% recycled content. The government estimates that this will affect up to 20,000 packaging producers and importers. HMRC will spend £6.6m on developing a new computer system to manage the tax, plus £11.3m more on staffing.

Cost and consequence

The bureaucratic burden of the PPT could prove disproportionately heavy for smaller firms and have unintended ramifications, predicts Professor Robert Holdway, a design expert at Brunel University London and director of environmental consultancy Giraffe Innovation.

“The argument is that this tax will increase demand for recycled plastics and stimulate the market. But it’s likely to drive up their price in the short to medium term. It could also disrupt well-established systems,” he warns. “If the oil price remains low, that makes using virgin material more attractive.”

An opposing view, from the end-of-life perspective, is that the tax will encourage innovation. Roger Wright, waste strategy and packaging manager at Biffa, says: “Introducing a tax to increase recycled content will have the desired effect. A growing number of businesses are approaching us for advice. We expect most to try using at least 30% recycled content and we’ve seen many do so already, although there may be issues for manufacturers of soft and flexible food packaging to solve.”

While the tax could add impetus to the drive for greater sustainability in packaging, the industry is already innovating more than ever, suggests Susan Hansen, global strategist for food and agribusiness supply chains at Rabobank.

Hansen argues that there are reasons why progress cannot be rushed. “The tax assumes that there will be enough recycled content available for all types of plastic packaging materials. This isn’t the case. It also anticipates that producers can swap recycled material for virgin material in an instant. That’s not the case either,” she says.

Changing behaviour or raising revenue?

The task of reducing the nation’s dependence on plastic packaging as a whole will, arguably, be made tougher by a tax policy that fails to distinguish between plastics that are relatively easy to recycle and those that are more troublesome. Tax is a notoriously blunt instrument in any case, but the problem that some people have with the PPT is that it will be plain indiscriminate.

Santiago Navarro, CEO of Garçon Wines, not only thinks that packaging is being singled out unfairly; he also believes that lumping highly recyclable plastics such as PET in with problem materials such as polystyrene is too simplistic.

“Grouping all polymers under the blanket term ‘plastics’ is like calling all vehicles ‘cars’ or setting income tax at the same level for everyone,” he argues. “Not all plastics are created equal and not all have the same end-of-life performance when recycling for circular economy.”

A pioneer of the sustainable letterbox-friendly flat plastic wine bottle, Garçon Wines already uses 100% recycled material. Nonetheless, Navarro questions the maths underlying the tax.

“A tax of £200 per tonne on packaging that’s usually very light is also quite lightweight when it comes to its financial impact. If the average plastic packaging product weighs 50g, a penny of tax would be chargeable on that unit,” he says.

It’s worth remembering that the purpose of taxation is not only to change behaviour, but also to generate revenue. The UK’s record in this respect looks poor. The government raised just under £41bn via so-called green taxes in 2020. According to law firm Pinsent Masons, this sum represents only 6% of the £633bn raised through taxation overall – down from 8% a decade ago.

Jason Collins, partner and head of litigation, regulatory and tax at Pinsent Masons, expects to see “a certain amount of ‘avoidance’ of the PPT – which is actually a good thing. The 2018 levy on sugar in soft drinks demonstrates something like a best-case scenario here: many drinks manufacturers avoided paying that by reducing pack sizes and sugar content. That’s the sort of behavioural change the government would like to see.”

A drop in a polluted ocean

Many environmentalists are less convinced that the PPT will have the desired effects. A 2018 campaign run by the City to Sea group called for a tax on all single-use plastic items, with the revenue ring-fenced for initiatives to tackle pollution and boost the circular economy. Nearly 250,000 people signed its petition to the government.

While she acknowledges that PPT is a positive step, City to Sea’s founder and CEO, Natalie Fée, believes that it doesn’t go anywhere near far enough.

“This is another example of a policy aimed at the wrong end of the waste hierarchy. It focuses on resource efficiency and recycling rates when we desperately need the government to take action on reducing the amount of plastic produced,” she says. “Until it does, this is just another drop in a very plastic-polluted ocean.”

By Jim McClelland

This article was originally shared by Raconteur.