The Plastic Packaging Tax was designed to deliver a clear policy objective. Duo questions whether the taxes are being put to good use.

The end of January marked the deadline for the submission of quarter three Plastic Packaging Tax (PPT) returns. We’re now closer to the end of the tax’s first full year, so it’s a good time to consider exactly what this significant levy is achieving.

Zoe Brimelow has been director at Duo since 2013 and the company are big advocates for a circular economy for plastics.

A taxing policy

Introduced on 1 April 2022, the PPT was designed to deliver a clear policy objective. A government paper outlined, in not so many words, that the tax is intended to provide a clear economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging.

This ‘economic incentive’ translates as a GBP200 per tonne charge on plastic packaging not containing at least 30% recycled plastic content. The rationale for this levy is to stimulate increased levels of recycling and collection of plastic waste.

On the surface, these aims are admirable and widely welcomed. Many progressive organisations want to reduce environmental impact and harness methods, such as recycling, which can help to achieve this. Delve beneath the surface, and what is more questionable is whether a tax is the right strategy for stimulating positive change. Given where we are, three full quarters into the PPT regime, it seems futile at this point to spend time debating the options for encouraging recycling and use of recycled content. 

Instead, it seems timely to consider if the PPT is achieving what it was designed to do. This inspired Duo to submit Freedom of Information (FOI) requests to HMRC. 

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Plastic Packaging Tax Freedom of Information requests

Available data from the FOIs for the first two-quarters of the PPT, covering April – June and July – September 2022, show the tax-generated total revenues of GBP135,871,000. This means that more than 679,000 tonnes of plastic packaging were liable for the GBP200 per tonne charge.

During this six-month period, the FOI requests show that a total of 1,162,776 tonnes of plastic packaging was exempt from the PPT. In total, 63% of all declared plastic packaging during the first two quarters contained at least 30% recycled plastic content. 

As it’s the first year of the PPT, it’s difficult to wholly benchmark the impacts of the tax regime and certainly too early to question its perceived success. There weren’t many variations between the data from the first two quarters to draw any meaningful conclusions about whether the tax is affecting change and encouraging greater use of plastic packaging containing at least 30% recycled plastic.

For example, the difference between the total volumes of PPT-exempt packaging submitted during each quarter was 56,000 tonnes. The total amount of packaging exempt from the GBP200 per tonne charge was around 9% less during the second quarter, compared to the first three months. However, alongside this, the total volume of all declared plastic packaging was approximately 7-8% less in quarter two. 

Plastic Packaging Tax finances

It is possible at this point to draw more conclusive insights from the financial performance of the tax. Prior to its introduction in April last year, the government outlined the exchequer impact of the PPT. This estimates overall tax yields and provides a more measurable context. From 2022 – 2023, the tax is expected to generate GBP235m in revenues, and more than GBP900m during its first four years. 

FOI data from the first two quarters imply the PPT is well on course to exceed first-year projections. Based on the tax continuing to yield a quarterly average of GBP67.9m, total revenues for the first year will exceed GBP270m. If this is the case, it may be prudent to reconsider what this means for projections.

The exchequer impact predicts that total PPT revenues will remain static in year two at GBP235m and then drop by GBP10m in the third year and by a further GBP15m in year four. The assumption being that over the years the industry adjusts to the tax and takes steps to comply.      

If there’s a higher overall level of PPT revenues in year one, versus estimates, it raises questions about the validity of projections for near-term declines in the tax payments. Does a higher starting point mean it’ll take longer than predicted for the industry to transition to plastic packaging containing at least 30% recycled content? Will we see the forecasted declines in PPT revenues in years three and four? Or will a higher starting point for returns encourage the industry to move quicker, as organisations strive to lessen the financial impact of the tax? Although this is unclear and requires further consideration, what is more certain is that the tax is generating considerable revenues and there’s no clarity about how the majority of this money will be spent.

The case for funding change

In the same policy paper that outlines the projected PPT revenues, it was also estimated that HMRC would incur capital costs of GBP10m toGBP20m for developing a new system to support the tax, together with GBP22m in staff and other resource costs. At the upper end of calculations, this means the UK Government must cover GBP42m in PPT expenses.

Whether the tax generates its projections of GBP235m in year one or tops GBP270m based on the FOI data, there’s a considerable amount of new tax revenue remaining after expenses have been covered. Thousands of affected companies have been paying the tax and they have a right to be informed about how this tax and their contributions will be used. Government should provide clarity on this, as well as an update on ongoing expenses for the future of the tax.

The funds generated by the PPT present an opportunity to build a world-beating recycling infrastructure, providing high-value, high-quality recycled materials to reduce dependency on virgin materials. UK homes and businesses need more access to recycling points and facilities, and, nationally, we need a more standardised approach to recycling. There are too many differences across local authorities, with varying strategies and tactics causing confusion that leads to less material being recycled or cross-contamination of materials in recycling streams.

Closed-loop recycling needs to be made easy and accessible for commercial and domestic users if we truly want to improve recycling rates and the volume of recycled material being used in packaging and other products. This will take time and considerable investment, which seems plausible given the early and projected yields of the PPT. It’s time for the Government to inform organisations about how the tax funds will help achieve its policy objectives.