Clause 47 - Chargeable plastic packaging components

Finance (No.2) Bill – in a Public Bill Committee at 2:15 pm on 22nd April 2021.

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Photo of Abena Oppong-Asare Abena Oppong-Asare Shadow Exchequer Secretary (Treasury) 2:15 pm, 22nd April 2021

I beg to move amendment 20, in clause 47, page 26, line 4, at end insert—

“(6) Before making regulations under subsection (5), the Commissioners must consult—

(a) industry representatives,

(b) environmental NGOs, and

(c) any other relevant individuals or organisations.”

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

With this it will be convenient to discuss the following:

Clause stand part.

Clauses 48 to 50 stand part.

New clause 12—Plastic packaging components review—

“(1) The Chancellor of the Exchequer must review the impact of section 47 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must estimate the expected impact of section 47 on—

(a) plastic packaging tax revenue,

(b) levels of recycled material (plastic and non-plastic) in packaging, and

(c) levels of reusability and recyclability of packaging material (plastic and non-plastic).

(3) A review under this section must also estimate the expected impact of—

(a) raising the 30% threshold in section 47 by 5% each year, and

(b) introducing a power to vary the 30% threshold in section 47 depending on the type of plastic packaging.”

Photo of Abena Oppong-Asare Abena Oppong-Asare Shadow Exchequer Secretary (Treasury)

I rise to speak to amendment 20 and new clause 12, as well as to the Government clauses. Clause 47 sets out the plastic packaging tax that will be charged on plastic packaging in which less than 30% of the plastic is recycled. Again, we are concerned that the Government’s ambition is too low. The UK plastic cap is already targeting an average of 30% recycled content across all plastic packaging by 2025.

New clause 12 is another probing amendment, to get the Government to consider creating an escalator in the amount of material that must be recycled in order to avoid the tax. An escalator that would be used effectively to reduce landfill would signal the Government’s commitment in this area and would also help businesses to plan for an increase in their use of recycled material over time, rather than being locked into unsustainable supply chains. It would also encourage the development of technology to overcome barriers to higher recycled content use. Further work would be needed on the precise percentage increase that would be needed each year to achieve the optimal reduction in non-recycled plastic.

Subsection (3)(b) of new clause 12 would require the Government to consider varying the 30% threshold, depending on the type of plastic packaging. Recycled content is easier to achieve for some polymers than for others. Green Alliance has pointed out that a single obligation will encourage gaming and switching between polymers. For example, manufacturers could reduce recycled content in packaging that already exceeds the threshold so that they can increase it elsewhere, resulting in no overall improvement. I hope that the Minister will look closely at the possibility of varying this threshold, as appropriate.

Amendment 20 is really a simple amendment to clause 47, which would require the commissioners to consult industry representatives and environmental NGOs before making regulations about the way in which the 30% threshold is calculated. At the moment, there is very little clarity about the verification process that will be used. Ideally, what we need is something such as an independent and verifiable recycled content verification system. As our amendment says, this should be developed in consultation with businesses and other stakeholders, to ensure that information on recycled content is trustworthy and can be audited, including for overseas producers.

In their witness evidence to this Committee, the British Plastics Federation has pointed out that the definition of “plastic packaging” for the tax is not aligned with the widespread definition of “plastic packaging” within existing UK and EU law, which it said is likely to result in confusion among manufacturers. Can the Minister explain why a different definition has been used? I hope that the Government will commit to working closely with all interested parties on this matter.

Finally, I will say something about the exemption of packaging made of multiple materials, which is set out in clause 48(3). In practice, it means that many of the materials that are most difficult to recycle that contain plastic—for example coffee cups and food cartons, as mentioned by the hon. Member for Glasgow Central—will not be captured by the tax. We are concerned that this could have the unintended consequence of encouraging businesses to switch to that sort of packaging, in order to avoid the tax.

Multi-layer materials are particularly difficult to recycle and cannot be recycled back into the same format. Cartons are not reported as a separate packaging category in recycling information, so it is impossible to say what the current recycling rate for them is. The UK has one open-loop recycling facility for cartons, with a capacity of 25,000 tonnes per annum. This compares with a market size of at least 60,000 tonnes per annum, meaning that it is already impossible to recycle domestically all the cartons put on the market in the UK.

Can the Minister address these concerns directly? What will the Government do to encourage recycling of this type of material? How will they ensure that the plastic packaging tax does not inadvertently increase the use of plastic? Finally, will they consider bringing the materials that I have just talked about within the scope of the tax in the future?

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary, Minister for Equalities 2:30 pm, 22nd April 2021

Clauses 47 to 50 set out key high-level definitions for the plastic packaging tax, which between them define the meaning of “plastic packaging”, when packaging is in scope of the tax and at what point packaging becomes chargeable. These are important definitions that give businesses clarity about whether their packaging will be liable to the tax, so I will go through them thoroughly. I will add that they will be supported by regulations and guidance later this year, to give further clarity to businesses.

Clause 47 determines the minimum threshold for the recycled plastic content that packaging must meet to be out of scope of the tax. For packaging that comes under this threshold, clause 47 also sets out at what point this packaging becomes chargeable. For imported plastic packaging, clause 50, which I will turn to shortly, also needs to be considered when determining the tax point. The tax will be charged on plastic packaging that contains less than 30% recycled plastic when measured by weight, and once it has gone through its “last substantial modification”. The concept of “last substantial modification” was introduced following stakeholder feedback that the packaging supply chain is complex and packaging is not always completed by a single manufacturer. By moving the tax point to after the last substantial modification, we reduce the risk that UK manufacturers will be disadvantaged by the tax by bringing the tax point to when the packaging is finished, as it is for imported packaging. This also keeps the tax point as close to the manufacturer of the packaging as possible, where there is most knowledge and evidence about what recycled plastic it contains. I hope that that answers the questions from the hon. Member for Erith and Thamesmead.

Let me turn briefly to amendment 20, which was tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Manchester, Withington. It would require the Government to consult industry representatives, environmental non-governmental organisations and other relevant organisations prior to making regulations under subsection (5) of this clause. Since the Budget announcement in 2018, my officials have conducted two policy consultations on the design of the tax and a further technical consultation on the draft legislation in this Bill. These responses were analysed to inform and validate policy decisions for the design of the tax. The Government are currently developing regulations and will continue to consult industry representatives, both through Her Majesty’s Revenue and Customs’ plastic packaging tax industry working group, which I mentioned and, more broadly, through a technical consultation on these regulations, as with all other regulations that are required to support the implementation of this tax. Given that comprehensive consultation with external stakeholders, such as that detailed in this amendment, has and continues to be a major feature of the design and implementation of this tax, the amendment is not necessary.

Clause 48 defines what a “packaging component” is—a product designed to be suitable for use for the containment, protection, handling, delivering or presentation of goods in the supply chain. This includes items such as plastic wrap, drinks bottles, and food packaging such as yoghurt pots and ready-meal trays. The scope of this definition includes packaging that does not fulfil its packaging function until it is used by the end consumer. This definition was revised following a technical consultation to ensure that only items designed to be suitable for use as packaging in the supply chain of the goods from the producer—in other words, the manufacturer—to the consumer are in scope; but to provide clarity to the person liable for the tax, who may not know the eventual use of the packaging, it does not matter whether the packaging is used in a supply chain or by an end consumer for packaging such as cling film or bubble wrap.

Clause 49 defines key terms relating to plastic, including the meanings of “plastic” and “recycled plastic”. The definitions in this clause determine whether a packaging component is plastic, and whether any of the plastic within that packaging component is recycled. The definition of plastic includes alternative plastics, such as biodegradables and compostables, putting them in scope of the tax. Although alternative plastics can play a role in addressing plastic waste, further evidence of their impact is required. For this reason, work is ongoing in this area and we will keep their tax treatment under review. The hon. Member for Erith and Thamesmead asked why the definition of plastic packaging in the Bill does not align with packaging regulations terminology. We recognise that there are differences between the definition of plastic packaging for the tax and packaging producer responsibility obligations, an issue that the British Plastics Federation raised. However, differences between the design of the tax and these responsibility obligations mean that a different approach is required. For example, the tax will have quarterly reporting periods, whereas businesses have longer to determine use and report their annual packaging producer responsibility obligations—these are often known as packaging recovery notes, or PRNs. Furthermore, PRNs adopt the EU definition of packaging, and now that we have left the EU we do not feel it appropriate to use this, especially as we are aware that the EU definition is under review and therefore subject to change.

Clause 50 establishes the time of importation. It ensures that, where there is a customs formality in place, such as customs warehousing, the tax will become chargeable only after the plastic packaging has cleared the customs processes where these apply. That will ensure that the tax does not act as a barrier to international trade and gives clarity to businesses about when the tax becomes due for imported plastic packaging.

I turn to new clause 12, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Manchester, Withington. The new clause suggests that the Government conduct a future review into the impact of clause 47, including the impact of increasing the 30% threshold for recycled content and having different thresholds for different types of plastic packaging. A £200 per tonne rate for plastic packaging that does not contain at least 30% recycled plastic will provide a clear economic incentive for businesses to use more recycled plastic in the production of packaging. In many cases, it will make using recycled plastic the most cost-effective option. Following consultation, the Government concluded that a single threshold will make the tax simpler for businesses to administer, minimise the compliance risks associated with multiple threshold levels and reduce the risk of lowering incentives for some types of packaging to include more recycled plastic.

As with all tax policy, the Government will continue to keep the plastic packaging tax under review, including the level of the tax, to ensure that it remains effective in increasing the use of recycled plastic. As I pointed out when discussing the previous set of new clauses tabled by Opposition Members, given the substantive information already published and the fact that limited new information is likely to be available before the tax is introduced, six months after the passage of the Bill would not be the right time to conduct and publish a review into the impacts of the recycled threshold for chargeable packaging components. The Government agree that it is important to understand the efficacy and impacts of the plastic packaging tax, but given that these issues have been previously considered and will be kept under review, the Government do not think that new clause 12 is necessary.

In conclusion, this group of clauses define key terms needed for the plastic packaging tax to work. They will be supported by secondary legislation and guidance, to provide further clarity on these terms.

Amendment, by leave, withdrawn.

Clause 47 ordered to stand part of the Bill.

Clauses 48 to 50 ordered to stand part of the Bill.