Chart: How plastic packaging will increase costs for retailers

Last week, the Department for Environment, Food and Rural Affairs (Defra) set out how much manufacturers are going to have to pay for using different packaging materials from October this year. This is part of an effort to shift the cost of processing packaging waste from local authorities onto producers – the scheme is titled Extended Producer Responsibility (EPR) for packaging.

The good (economic) news for retailers is that the use of plastic and most other materials is likely to be marginally less than originally thought. The government will be charging £423 per tonne, rather than the £485 set out in illustrative fees last December. In fact, EPR fees for all materials have been reduced since then, except for fibre-based composite (think cardboard food cartons with plastic linings).

Particularly controversial among suppliers has been the cost of glass. The British Beer and Pub Association is citing a 9p increase per wine bottle and 4p increase per 330ml beer bottle, based on the additional cost to brewers.

The bad (economic) news remains that this is still looking likely to be pricey and even more so in future years. In addition to the base EPR fees, a “modifier” is being introduced with a punitive rate for packaging marked as ‘red-rated’. This could be packaging that is hard to recycle, clearly polluting or simply not collected much by local authorities.

‘Red-rated’ packaging will be charged at a 20% higher rate in 2026, 60% higher in 2027, and 100% higher (double the base fee rate) by 2028. These levies will be used to fund discounted rates for ‘green-rated’, highly recyclable, packaging during the scheme.

This is a big deal because there is a considerable amount of packaging used by retailers that is likely to fall into the red category. While rigid plastics (e.g. bottles and cartons) are often easy to recycle, flexible plastics (e.g. films and sachets) have quite low collection rates as things stand. The target for recyclability is 75% or more of local authorities collecting the material and no types of flexible plastic get higher than 14%.

It is not yet clear how much of an impact the fall in base fees are going to have on retailers yet given how complicated the calculations are. The BRC originally gave an estimate of a £2bn cost before the specific fees were announced.

“This is upwards of £1.8bn, even if you were to take a 10% cut off our original estimate, so these are big figures,” says BRC director of food and sustainability Andrew Opie, who adds that some of their members face millions in costs.

Earlier in the year, M&S cited a figure of £40m, equivalent to 5% of profit this year, for dealing with the packaging levy. In addition to the initial fees, there are potential short-term costs in funding switches to greener materials to reduce overall long-term costs plus the extensive work involved in ensuring compliance.

Even retailers not making their own products will be affected by suppliers passing costs down the line. Defra’s own impact assessment suggests that 85% of costs will likely be passed onto consumers.

Retailers that make or import products, manufacturers and suppliers are now having to comb through their product catalogue to assess the volume of packaging that falls into the various categories. Their assessments will be used to calculate base fees for next year.

The increase in plastic packaging recovering or recycling rates in the UK has been notable. From 25.2% in 2012, to 52.5% in 2023 (recovery also includes other types of processing like composting and the conversion of a material into fuel).

But, given that the volume of plastic being used has roughly stayed the same across the period, that means there is a lot of plastic packaging – around 1 million tonnes a year – that goes to landfill or elsewhere.

EPR is not the only levy either. Since 2022, companies importing or manufacturing packaging for some types of plastic packaging (containing less than 30% recycled) have been paying a Plastic Packaging Tax, now standing at £223.69 per tonne. In addition to that, companies handling a lot of waste must pay for a certificate called a PRN that demonstrates that some packaging material has been recycled on their behalf.

The retail sector had been particularly concerned that the initial plans did not force councils to reserve the money raised for spending on recycling. An ongoing fear has been that cash-strapped councils would use the money for other priorities.

The newest version of the plan clarifies that, with councils and local authorities having to report the amount of money directed towards waste management services each year. Those that do not funnel the money correctly are poised to recoup less in future years, according to a joint letter by the responsible bodies from the four nations of the UK. However, the BRC is still looking for clarity on how this scheme will be audited. 

“It just seems a little bit staggering that they’re going to be raising lots of money, but nobody’s really sure what difference it’s going to make to recycling, certainly in the short-term,” says Opie.