Packaging rules raise the price of food – Daily Business Magazine

Attempts to cut shopping bills will be offset by new taxes, writes TERRY MURDEN

John Swinney and Rachel Reeves have at least one thing in common. Both want to tackle the cost of living by controlling food prices. The first minister said he could co-operate with the Chancellor on the issue. Unfortunately, no one seems to have told the Department for Environment, Food and Rural Affairs (Defra) which is refusing to withdraw a packaging tax that will see prices rise.

The Extended Producer Responsibility (EPR) regime requires food producers and online retailers to pay a charge for every item of packaging they use in the products they sell.

It makes manufacturers and brand owners financially and operationally responsible for the entire lifecycle of their products, the so-called “polluter pays” principle. Companies will cover the costs of collecting, sorting, recycling, or disposing of their packaging waste.

Products that are harder to recycle or contain hazardous materials incur higher disposal fees. If this reduces non-recyclable packaging and the volume of waste heading to landfill sites it must be a good thing.

However, it will also add an estimated 0.5 percentage points to food inflation, according to the Bank of England, and means Treasury and Holyrood talk of cutting the supermarket bill is little more than that.

Furthermore, other taxes are in the pipeline, on coffee cups, soup containers and juice cartons. These levies drew an enthusiastic response from local authorities which will receive the additional funding. It is meant to improve recycling at local level, but there is no obligation on councils to dedicate the money raised to such an outcome and they could instead divert it into the general pot to spend on other projects.

One executive at a large grocery chain told The Sunday Times that the hit from EPR to its bottom line would increase by roughly a fifth, while Nick Kirk, federation director at trade body British Glass, said the new regime “is already contributing to a sharp decline in domestic glass production, rising imports and growing uncertainty for investment across the sector”.

The British Retail Consortium is calling for the modification of EPR, the temporary suspension of the Plastic Packaging Tax (PPT) and the removal of the PRN (Packaging waste Recovery Note) system.

A source in the recycling industry says retailers are over-stating the impact of the new taxes, and that calling EPR a “stealth tax” is a convenient distraction from the real pressure on food inflation which is the Iran war through higher fuel and fertiliser prices.

That may be so, but either way, retailers will respond by trimming their costs and investment or by raising their prices, even if only marginally. And even a marginal price rise is not what Mr Swinney or Ms Reeves are promising.

Terry Murden was Scotland Editor and Business Editor at The Sunday Times, Business Editor at The Scotsman, and Business and City Editor at Scotland on Sunday. He is now Editor of Daily Business

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