Why the plastic tax has delivered more and less than expected

The much-trumpeted plastic packaging tax (PPT) has generated more revenue than forecast for HMRC but in other ways has fallen short, say Zoe Wakeham and Daniel Wood, Consultants in our Consumer & Retail practice.

Cutting single-use plastic packaging is a laudable aim, but as manufacturers and retailers have discovered this presents a host of sourcing and supply chain challenges. And the introduction of targeted taxation designed to encourage the use of recycled plastic has not yet had the effect predicted.

PPT is applied to packaging manufactured in or imported into the UK which does not contain at least 30% recycled plastic by weight. It came into force from 1 April 2022 at a rate of £200 per tonne of plastic packaging, increasing to £210.82 per tonne in April this year.

Ostensibly, that sounds great from a sustainability perspective. Even better when one considers that in its first year, HMRC raked in £276 million from PPT (£41 million more than the £235 million it forecast).

But – and there are a couple of big buts here – revenue was generated from just 4,142 registered businesses, way below the expectation that around 20,000 companies would make PPT returns. Moreover, there is disappointment among manufacturers and retailers that the revenue raised by the plastic tax is not being ringfenced for use in supporting recycling initiatives, and The Grocer reports that “experts say, the tax has also failed to prompt any major shift towards the use of recycled plastic.”

Aside from bolstering Treasury coffers, the tax has therefore been something of a damp squib. Yet overall the direction of travel is clear, as evidenced by the publication on 4 September of the United Nations’ Zero Draft of the Plastics Treaty which aims to cut plastic pollution.

PPT has certainly created compliance challenges and in many instances this calls for cross-functional collaboration that may involve some or all of the tax, procurement, logistics, compliance and IT teams. As a business, we see rising demand for interim expertise to address the challenges bound up with supply chain issues around cutting the use of virgin plastics, often with a view to protecting profit margins.

Data is also a key aspect given that PPT places significant administrative requirements on many businesses. As Deloitte notes, “PPT creates a need to gather more detailed data on the plastic packaging used, which may be held outside of the usual finance systems or come from disparate sources. Businesses have had to consider how to capture information on packaging from supply chain counterparties and communicate responsibilities. Obtaining more granular data remains an area of focus for many businesses.” Some affected organisations still lack sufficient data expertise in this regard.

This is a complicated area and the picture has been further clouded by the government pushing back the enforcement of data reporting in relation to packaging waste. All large producers and compliance schemes were due to have begun providing packaging data by 1 October ahead of the introduction of extended producer responsibility (EPR). In early September, the government announced that the deadline for supplying data was being pushed back to next year, following the deferral of EPR payments for 12 months to October 2025. The Grocer pulled no punches in referring to the situation as “EPR chaos”.

While confusion is seldom welcome, these delays will come as a relief to businesses struggling to get their (30%-plus recycled plastic) ducks in a row. Even organisations with the resources of McDonald’s are not yet where they would like to be. One of the fast food giant’s prime circular economy objectives is to transition away from virgin fossil fuel-based plastics in its primary guest packaging to 100% renewable, recycled or certified sources by the end of 2025 and drastically reduce plastics in favour of more sustainable materials in its Happy Meal toys around the globe.

On the subject of happy, we would be delighted to talk about how our interim talent can help with your packaging or broader supply chain challenges.