Clause 83 - Plastic Packaging Tax

Finance (No. 2) Bill – in a Public Bill Committee at 6:30 pm on 5 January 2022.

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Question proposed, That the clause stand part of the Bill.

Photo of Angela Eagle Angela Eagle Labour, Wallasey

With this it will be convenient to discuss the following:

That schedule 11 be the Eleventh schedule to the Bill.

New clause 17—Annual review (plastic packaging tax)—

“(1) The Chancellor of the Exchequer must review the impact of section 83 and Schedule 11 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act and once a year thereafter.

(2) A review under this section must estimate the expected impact of section 83 and Schedule 11 on—

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

(b) levels of reusability and recyclability of packaging material (plastic and non-plastic),

(c) the waste hierarchy,

(d) levels of carbon emissions, and

(e) progress towards a circular economy.”

Photo of Helen Whately Helen Whately The Exchequer Secretary

Clause 83 and schedule 11 make technical amendments to the legislation that introduces the world-leading plastic packaging tax, which comes into force on 1 April. Together, they make sure that the legislation operates as intended, that the UK complies with international agreements and that HMRC has the appropriate framework to administer the tax.

Plastic packaging tax legislation was introduced in the Finance Act 2021 and will apply to plastic packaging that does not contain at least 30% recycled plastic. It will be charged on unfilled plastic packaging manufactured in the UK and on unfilled and filled plastic packaging imported into the UK. It will provide a clear economic incentive for businesses to use recycled material when manufacturing plastic packaging. This will help tackle the problem of plastic pollution, creating greater demand for this material and in turn stimulating increased levels of recycling and collection of plastic waste, diverting it from landfill or incineration.

As often happens when introducing new legislation, particularly in the volume required for a new tax, a small number of technical amendments are required to make sure that the tax works as intended and can achieve its environmental aims. In addition, amendments are needed to ensure that the tax complies with international law. Clause 83 and schedule 11 make technical amendments to the Finance Act 2021. In summary, the changes will allow HMRC to make provision to modify the timing of an import and the meaning of import and customs formalities using secondary legislation. This means that the point at which the tax is chargeable can be amended to align with future changes to other policies, notably on customs and freeports. The changes also confirm that businesses below the de minimis threshold that do not have to register for the tax do not have to pay the tax. This will make sure the policy intent is achieved and reduce the burden on businesses that manufacture or import plastic packaging below the de minimis threshold.

To ensure UK compliance with international agreements, the changes will provide tax reliefs for persons enjoying certain immunities and privileges, such as visiting forces and diplomats, with provision to set administrative requirements in secondary legislation. Additionally, in respect of group registrations, the changes will transfer the obligations and entitlements, such as completing returns, to the representative member of the registered group. The changes will also require HMRC to notify the representative member of a group of the date that applications for and modification of group treatment will take effect. Finally, changes will amend certain terms used to describe unincorporated bodies to ensure consistency throughout the legislation. As the changes are technical amendments, some of which make the legislation reflect previously announced policy, there is expected to be no additional impact on businesses.

I have comments to make on new clause 17, but I am happy to hear arguments for it from Opposition Members before responding to those points.

Photo of Abena Oppong-Asare Abena Oppong-Asare Shadow Exchequer Secretary (Treasury) 6:45, 5 January 2022

The Minister was not in post last year and so missed the extensive discussions we had on the plastic packaging tax, which I am sure she is not sad about. However, as I said then, the Opposition support the introduction of a plastic packaging tax and believe it can play an important role in reducing the production of new plastics, encouraging the use of recycled plastic and diverting plastic from landfill or incineration. We are now only months away from this tax coming into effect, so it is good that we are able to consider it again today.

The clause makes technical amendments to ensure the tax works as intended, and we do not oppose it. However, as the Minister pointed out, we have tabled new clause 17, which calls on the Government to publish an annual review into the operation of these clauses in the context of the wider tax. In particular, we call on the Government to report on how the tax affects levels of recycled material—plastic and non-plastic—in packaging, levels of reusability and recyclability of packaging material, the waste hierarchy, levels of carbon emissions and, finally, progress towards a circular economy. Each of those criteria is vital for assessing the success of the new tax in meeting its aims. As I set out when debating the Finance Act 2021, we share the concerns of many environmental groups and the recycling industry that the tax lacks ambition, and I have met various stakeholders about this issue.

The tax rate is set at £200 per metric tonne of chargeable plastic packaging components. We have already raised our concern that a low, flat-rate tax will not provide enough of an incentive to encourage plastic manufacturers and importers to move towards greater use of recycled plastic at the speed that we need them to do so, which is something that a number of stakeholders have also raised with me. Has the Treasury made any further assessment of the tax since the Finance Act 2021, and does it still think that the £200 rate provides enough of an incentive for businesses to shift away from non-recyclable plastic rather than just pay the charge?

Similarly, we are concerned that the percentage of non-recycled plastic allowed before the tax kicks in is too low. Last year, we proposed an escalator mechanism that would signal the Government’s commitment in this area and help businesses plan for an increase in their use of recycled material over time, rather than being locked into unsustainable supply chains. I hope the information I have provided is useful, because I know the Minister was not on the Bill Committee for the Finance Act 2021. Could she tell us whether the Government have made any further consideration of this approach?

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

Like the hon. Member for Erith and Thamesmead, I remember the discussions that we had on the plastic packaging tax last April. It is with some concern that I heard the Minister say that the Government want to amend the legislation that they passed just last year so that it works with international law. It seems a wee bit of an oversight to have put through legislation that does not comply with international law, but I am glad that the Minister has brought it back in order to amend it before it comes into force.

I was also concerned by what was said about exemptions around freeports, and I wonder whether the Minister could expand on that a bit. What exactly does it mean? It is mentioned in the explanatory notes as well, but I am not quite clear what it means. If someone is importing or exporting plastics through freeports, does the tax not apply? I am quite concerned by that, because it would be a considerable loophole. It would also fly in the face of what the Scottish Government have asked the UK Government to work with them on with regards to green ports, whereby instead of being tax havens, they will actually be something that helps to support our climate change goals in Scotland. As far as I am aware, the UK Government are still holding out on any kind of agreement with the Scottish Government that allows a green port to proceed in Scotland. If the Minister has any information on that, it would be welcome.

There is a missed opportunity for the Government to table amendments to the Bill. As I said when we discussed this issue last year, the Government have not taken the opportunity to distinguish between different types of plastics. Some types of plastics, particularly PET, can be 100% recyclable in bottles that can be bought in shops. HTP, which is used in milk bottles—it is slightly opaque plastic—is less recyclable. The Government could have made distinctions in the regulations that they made around plastic. Instead of setting the level at 30%, they could allow people to recycle 100% for PET and made that the target for something that is recyclable and achievable, which would make a huge difference by incentivising companies to do more, rather than allowing them to accept the minimum that they can get away with. I urge the Government to think about any further amendments that they could make to the scheme to make it more effective and greener, and to encourage more companies to take up the opportunities that lie within it.

Photo of Liz Twist Liz Twist Opposition Whip (Commons), Shadow Minister (Scotland)

I want to comment on two areas. First, I want to speak in support of new clause 17. My hon. Friend the Member for Erith and Thamesmead has explained her concerns that the tax, as currently proposed, is unambitious. That, I think, is a good reason to look at reviewing the measures that are in place and seeing whether they are doing what they were expected to do but also whether they need to be strengthened in the future, so I very much support the new clause.

The other issue that I want to raise is about clause 83 itself. It is the considerable number of references in schedule 11 to further measures being taken in the future through secondary legislation. There is a striking number of them. Paragraph 3, for example, allows the commissioners to make regulations—admittedly by the affirmative procedure, which is better than the negative procedure. We see this again in paragraphs 4 and 6. Can the Minister explain to us why we need so many areas to be covered by secondary legislation? Should they not in fact be covered by the primary legislation?

Photo of Helen Whately Helen Whately The Exchequer Secretary

First, I welcome the support from the hon. Member for Erith and Thamesmead for the plastic packaging tax. I am glad to hear that she does not intend to oppose clause 83 and schedule 11.

To pick up specifically on new clause 17, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Blaydon, it suggests that the Government should conduct future reviews of the tax and the impact that it has, including six months after the passing of the Bill for the tax rate and chargeable packaging components, and for all aspects of the tax a year after introduction or annually after an initial report. The Government have already set out a large amount of detail about the expected impact of the tax, and the National Audit Office report on environmental taxes recently concluded that Her Majesty’s Treasury and HMRC had

“undertaken extensive work to understand the possible impacts of the tax”.

Further detail on modelling to assess the impacts of the plastic packaging tax was set out by the Office for Budget Responsibility in its economic and fiscal outlook published in March 2020. This included most significantly the increase in recycled plastic in packaging and more marginal impacts, such as switching to alternative plastics or materials.

As with all tax policy, the Government will continue to keep the plastic packaging tax under review. Given the substantive information already published and the fact that very limited data will be available within six months after the passage of the Bill, it would be premature to review the impacts of the tax as suggested. As to evaluating the impact of the tax annually after its introduction, being able accurately to isolate the impact of particular policy measures alongside other external factors is inherently difficult, and the Government will carefully consider these issues. As set out in the tax information and impact note published in July 2021, consideration will be given to evaluating aspects including the rate, threshold and exemptions from the policy after at least one year of monitoring data has been collected and analysed.

The Government agree that it is important to understand the efficacy and impact of the plastic packaging tax, but given that these issues have been previously considered and will be kept under review, we do not think that new clause 17 is necessary.

I come now to a couple of the specific points made by the hon. Member for Glasgow Central. I can assure her that there is not an exemption from the plastic packaging tax for freeports. The clause is to ensure that the tax continues to apply with any changes to freeports legislation. And that would be the reason for not including everything in primary legislation—to answer the hon. Member for Blaydon’s point—but requiring some flexibility through secondary legislation.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

The specific point I was referring to is paragraph 5 on page 164 of the explanatory notes, which says:

“This change ensures that the tax can be amended if changes to other legislation, for example regarding customs or Freeports, require a consequential amendment to Plastic Packaging Tax legislation to ensure it continues to work effectively.”

I am just asking why freeports are included there. I do not understand the reference if there is no intention to make a change.

Photo of Helen Whately Helen Whately The Exchequer Secretary

What the hon. Lady read out is in line with what I said—there is not an exemption for freeports to supply the necessary flexibility—but I am happy to write to her with the reason why freeports get such a specific mention.

The hon. Lady also raised a point about a freeport for Scotland. We remain committed to establishing at least one freeport in Scotland, Wales and Northern Ireland as soon as possible.

The clause and schedule make sure that the plastic packaging tax will operate as intended from its commencement on 1 April 2022.

Photo of Liz Twist Liz Twist Opposition Whip (Commons), Shadow Minister (Scotland)

I wonder whether the Minister has forgotten to address the issue of secondary legislation.

Photo of Helen Whately Helen Whately The Exchequer Secretary

I jumped across to that point when I was addressing the freeports point. In general, it is to allow flexibility, where primary legislation is not the right place to put measures. I am happy to write to the hon. Lady if there is anything further to add on her particular point.

Question put and agreed to.

Clause 83 accordingly ordered to stand part of the Bill.

Schedule 11 agreed to.

Ordered, That further consideration be now adjourned. —(Alan Mak.)

Adjourned till Tuesday 11 January at twenty-five minutes past Nine o’clock.

Written evidence reported to the House

FB11 Low Incomes Tax Reform Group (LITRG)


FB13 Chartered Institute of Taxation (CIOT)