Finance (No.2) Bill (Second sitting)

Alison Thewliss Excerpts

Thursday 22nd April 2021 Public Bill Committees

[The Exchequer Secretary to the Treasury (Kemi Badenoch)]

As the Committee will know, the Government are deeply committed to greening our economy and being the greenest Government ever. As part of our resources and waste strategy, published in 2018, we committed to reducing waste and incentivising more sustainable production. The introduction of this world-leading tax on plastic packaging is a key part of that strategy.

Plastic waste is a pressing global issue. It often does not decompose and can last centuries in landfill, or ends up littering the streets or polluting the natural environment. More than 2.2 million tonnes of plastic packaging are manufactured in the UK each year. The vast majority is made from new plastic, rather than recycled material, because recycled plastic is often more expensive to use than new plastic. To tackle this, our 2019 manifesto reaffirmed the commitment to introduce a world-leading new tax on plastic packaging from April 2022. The tax will apply to the manufacture and import of plastic packaging that does not contain at least 30% recycled plastic.

The tax charge will arise on unfilled packaging manufactured in the UK and to unfilled or filled packaging imported into the UK. Including imported filled packaging in the tax will prevent any potential disadvantage to the UK packaging industry and means that packaging around imported products—for example, the bottle a drink comes in—will be within the scope of the tax.

The tax will provide a clear economic incentive for businesses to use recycled material when manufacturing plastic packaging. That will help to 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 away from landfill or incineration.

Clauses 42 to 46 set out the introduction of the plastic packaging tax. They provide the high-level principles around the charging of the tax, including key definitions needed to give businesses clarity about whether they are liable to the tax on packaging they manufacture or import. The Bill also provides powers to make secondary legislation that will provide further clarity to these definitions. That will be supported by guidance, which will also be published later this year.

Clause 42 introduces the PPT and sets out that Her Majesty’s Revenue and Customs will be responsible for its collection and management, in line with its wider responsibilities for the collection and management of taxes. Clauses 43 and 44 set out that the tax will be paid on packaging manufactured in the course of business in the UK, as well as on imported plastic packaging. For packaging manufactured in the UK, the manufacturer will be liable for the tax. For imported packaging, the person on whose behalf the packaging is imported will be liable, as they are better placed to know about the packaging than those providing customs and transport services to import goods.

Clause 45 sets out that the tax will be charged at a rate of £200 per metric tonne of chargeable plastic packaging. We will come later to the clause that sets out the 30% threshold for recycled plastic, below which the tax will be charged. A £200 rate provides a clear economic incentive for businesses to use recycled material when manufacturing plastic packaging. The clause specifies that this rate applies to a single plastic packaging component, such as bottles, lids and wrappers. This will mean that manufacturers and importers have incentives to include 30% recycled plastic in each type of plastic packaging component that they manufacture or import. If this is part of a tonne, the amount is reduced proportionately. For example, 0.5 tonnes would equate to £100 in tax. Clause 46 provides the high-level principles for the payment of the tax in relation to the relevant accounting periods. Further detail on this will be set out in regulations.

I now turn to new clause 8, tabled by the hon. Members for Glasgow Central, for Glenrothes, for Gordon and for Midlothian, and new clauses 11 and 13, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Manchester, Withington. These new clauses suggest that the Government conduct future reviews into the tax and the impact that it has, including after six months of passing the Bill for the tax rate and for all aspects of the tax in the 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 a National Audit Office report on environmental taxes recently concluded that Her Majesty’s Treasury and HMRC

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

The tax information and impact note published in March this year set out that, as a result of the tax, the use of recycled plastic in packaging could increase by around an estimated 40%—equal to carbon savings of nearly 200,000 tonnes—with expected revenue from the tax ranging from £210 million to £235 million a year between 2022-23 and 2025-26. 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. Most significantly, that included the increase in recycled plastic in packaging and more marginal impacts, such as switching to alternative plastics or materials.

The aim of the tax is to incentivise the use of more recycled plastic, rather than new plastic, in plastic packaging. The tax will complement the reformed packaging producer responsibility regulations, which will encourage businesses to design and use plastic packaging that is easier to recycle, and discourage the creation of plastic packaging that is difficult to recycle. They will also make businesses responsible for the cost of managing the packaging they place on the market when it becomes waste. Given that, the Government have focused analysis of the plastic packaging tax on the objectives rather than wider issues such as the reuse and recyclability of packaging, as suggested in new clause 13.

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. 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 impact of the tax rate and chargeable packaging components.

As regards evaluating the tax annually after its introduction, being able to accurately isolate the impact of particular policy measures alongside other external factors is inherently difficult, and the Government will carefully consider those issues. As set out in the tax information and impact note published in March this year, consideration will be given to evaluating aspects, including the rate, threshold and exemptions, of the policy after at least one year of monitoring data has been analysed and collected.

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, we do not think new clauses 8, 11 and 13 are necessary. The clauses in the Bill form the first part of the legislation needed to introduce the plastic packaging tax in April 2022. I therefore move that they stand part of the Bill.

[Alison Thewliss (Glasgow Central) (SNP)]

I rise to speak to new clause 8, tabled in my name and that of my colleagues. I remain interested in the idea of a plastic packaging tax, and I will support it because too many of our natural resources are being wasted. We know from looking around that things are often thrown away that could be used again. We certainly broadly support what the Government are trying to do here, and it is a shame that it does not align with the deposit return scheme, which has been delayed in England but will move ahead in Scotland, because doing these things at the same time would have made a lot of sense and would make for a cohesive and coherent policy.

We tabled our new clause because there are aspects of the Bill where we need a wee bit more detail and aspects where the Government could be more ambitious. It is an ambitious new policy, but I think that more could be done. For example, we understand from the consultation that Her Majesty’s Treasury has closed a loophole that would have allowed people to switch to bringing in packaging from abroad, but there are still questions around the operation of the paperwork and the audit trail that will be required to ensure the success of the scheme. We also understand that the provisions are to be made by regulation under the negative procedure, and we urge the Government to be as clear as possible about how that will work, because it is important. Those in the industry will want to know how that will operate, and it falls to us as elected representatives to scrutinise that as much as we can to ensure that it is done properly.

Having spoken to stakeholders, there are concerns that I want to set out. The first is about the 30% threshold. Last night, I went to pick up a bottle of brand-name lemonade from the supermarket as part of my dinner. It proudly proclaimed on the side that it was 50% recycled, which is already above the 30% threshold—they were already doing more.

Some plastics lend themselves more to a higher level than others. PET, which is used in fizzy juice bottles such as my lemonade bottle, can be commonly and easily recycled up to 100%, so 30% is quite low for that type of plastic. The new clause seeks to look at different types of plastic and the scope for recycling them.

Polypropylene, which is used for food-grade plastics, is much more difficult to recycle. Just before lunchtime, a briefing from the Food and Drink Federation reached me. It queries what will happen about food-grade plastics and whether food businesses can avoid paying the plastic packaging tax when they cannot legally increase the recycled content of packaging in certain polymer types and formats for food contact. There are different regulations for food-grade plastics than for other plastics.

HDPE, which is used in milk bottles, could reach 30%. The dairy industry road map suggested that it was aiming for 50% of recycled material in opaque milk bottles. Again, we are not quite sure what the 30% makes possible. It would be good to be more ambitious in the areas where we can do more recycling, so that we can storm ahead. In areas where it is more difficult, it makes sense to look at things slightly differently.

The Association of Accounting Technicians commented on the international context. Brands such as Kraft Heinz have committed to make 100% of packaging worldwide recyclable or compostable by 2025. The American Chemistry Council’s plastics division is working towards 100% of plastic packaging being recyclable and recoverable by 2030. The European Commission and the Australian Government are also pushing ahead and say that 30% appears to lack ambition on a global scale.

I gently urge the Government to see if there is a differentiated approach that might be a bit more ambitious and a bit more detailed, to allow those areas where more speed is possible to push ahead. The Green Alliance believe that a differentiated obligation would be useful, because there is potential there. While we want all areas to be recycling 100% if possible, there are real technical difficulties in doing so at the moment.

The Green Alliance is also concerned about perverse outcomes from the Bill around packaging composed of multiple materials, such as card coated in a plastic or other such elements. Such items are very difficult and specialist to recycle. We would not want people to switch to those items rather than plastics; that would make the recycling situation worse because those items cannot be recycled and recovered as easily. Our new clause also addresses that point, as well as ensuring the reporting of recycling rates and the volume use of the relevant plastics.

It is important to note that the price of plastics, both recycled and virgin material, is very volatile, fluctuating with the oil price, which as we all know has moved considerably in recent years. We are worried that the scheme will not deliver the desired outcome in the event of low oil prices. Some experts suggest that plastics recycling is unviable if the oil price is under £65 a barrel. An HMT analysis of the tax level required to balance that volatility and reduce exposure would seem logical.

The £200 per tonne levy could be set higher, and there should be further analysis. At £200 per tonne, it might be more viable for businesses to pay the tax, rather than recycle the materials, which is not the Government’s very laudable aim. It would be useful to understand that fully, as low oil prices will have an impact on the viability of recyclers. Some have attributed the failures of recycling plants in London and Lincolnshire in 2015 and 2017 to that oil-price volatility. We want to ensure that those recyclers are viable businesses. We want to give a future to this sector and to ensure that these businesses can thrive, because they do good work.

A contrast has been drawn with the landfill tax, which has a clear trajectory and clear predictability, allowing people to plan a way for the market to shift to alternatives. We need to make it as easy as possible for businesses to do that. An escalator, as suggested by the Green Alliance, would be useful, so that people can plan and, if behaviour changes or other prices play into that, there is a clear sense of where we are going.

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[Kemi Badenoch]

I will go through the points that hon. Members have raised, and I think I will be able to answer quite a few of their questions. On the point about the 30% recycled plastic threshold being too low to be effective, I would say to the hon. Member for Glasgow Central that a £200 per tonne rate for plastic packaging that does not contain at least 30% recycled plastic will provide a clearer economic incentive for businesses to use more recycled plastic in the production of packaging—at the moment, it is just about 10%—and, in many cases, will make it more cost effective. We as a Government believe that setting the threshold for the level of recycled packaging at 30% is ambitious, reflects the pressing need to act on this issue and is achievable in the foreseeable future for many types of packaging. There is no point setting a threshold that we do not think people will be able to meet.

On the question of consultation with industry representatives and stakeholders, we consulted extensively. All regulations under this part of this Bill will also go through a public technical consultation before they are finalised. We will seek comments from interested stakeholders. HMRC has also set up the plastic packaging tax industry working group and conducted meetings with it to support the implementation of the tax and aid the process of drafting regulations and guidance. I take the point that the hon. Lady has made about the clarity of that guidance, and I am sure—because HMRC is working with the industry working group—that it will get there. The group consists of an independent expert and trade organisations that cover the wide range of sectors affected by the tax, ensuring that a broad range of views are taken into account.

To date, the Government have conducted extensive engagement with the industry on the design of the tax, and held two policy design consultations and one technical consultation about the clauses of this Bill. HMRC also continues to have regular contact with the devolved Administrations, non-Government departmental bodies, and other interested stakeholders about all activity regarding the tax.

[Alison Thewliss]

I am glad to hear that that engagement is ongoing. Can I ask whether the Food and Drink Federation is included within that? I am a wee bit concerned that its concerns came through this afternoon, just before we were due to discuss this issue. Perhaps the timetable that we have gone through with the Bill has surprised people who thought that they had a couple of days longer to get their submissions in, and I would like to know whether the Food and Drink Federation was part of that.

[Kemi Badenoch]

The Food and Drink Federation is part of the industry working group. The other members are WRAP, the British Plastics Federation, the Chartered Institution of Wastes Management, the Foodservice Packaging Association, the Grantham Institute, the Chartered Institute of Logistics and Transport, Inkpen, the British Retail Consortium, the Packaging Scheme Forum, the Association of the British Pharmaceutical Industry and the Forum of Private Business.

I was asked whether there is evidence that the tax will cause any change because of the level that it has been set at, but I think I answered that in my previous answer.

The hon. Members for Erith and Thamesmead and for Glasgow Central asked about the oil price. The Government recognise that the price of oil may impact on the demand for virgin and recycled plastic, which is why we are putting in place a number of reforms to transform the economics of recycling. A stabilisation fund to protect against changes to the oil price would be highly complex to administer and would carry a risk to public finances. We are not going with that, but tax measures are being introduced by the Department for Environment, Food and Rural Affairs, including extended producer responsibility reforms and a deposit scheme. The hon. Member for Glasgow Central mentioned that there is one in Scotland, and we will be introducing one in England as soon as is practical. We are seeking feedback on proposed timelines from DEFRA’s consultations. All of that will help increase the supply and quality of recycled plastic, making it a cheaper and more viable alternative to virgin plastic. That will also make demand for recyclable plastic less susceptible to changes in the oil price.

There was a similar question about complex multi-material packaging. We are not making an exemption for that, because during the consultation on the treatment of multi-material packaging, the Government decided that all packaging in which plastic is the largest material by weight should be within the scope of the tax. This will make it easier for businesses to administer the tax, and it will also rightly focus on packaging components that use the most plastic as a proportion of all material. We are confident that a reformed producer responsibility system for packaging will complement the tax and incentivise businesses to design and use packaging that can be recycled more easily.

[Alison Thewliss]

One of the things that has been raised with me is that, if someone gets a traditional coffee cup from any high street coffee chain, the coffee cup would not be within the scope of the Bill, but the lid would be. Does that not seem a wee bit perverse?

[Kemi Badenoch]

I am not sure that is the case. HMRC and the members of the working group could give specific details on exactly how that would work, but we are having the public technical consultation. That is the sort of question that can be raised there; hopefully, it will receive an answer.

Question put and agreed to.

Clause 42 accordingly ordered to stand part of the Bill.

Clauses 43 to 46 ordered to stand part of the Bill.

Clause 47

Chargeable plastic packaging components

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[Abena Oppong-Asare]

Again, I have relatively little to say on the clauses, which in this case relate to registration. I do note that firms do not have to register or pay the tax if they manufacture or import less than 10 tonnes of plastic packaging. Is the Minister concerned that that is quite a sharp threshold, whereby producing just over 10 tonnes could bring a firm into the scope of the tax? Has the Treasury given any consideration to a more gradual threshold? Also—I am struggling to talk, because I have a mask on my face—let me ask the Minister what monitoring will be undertaken to ensure that all the individuals and firms that are required to be on the register are in fact registered?

[Alison Thewliss]

In practical terms, how many additional staff will be brought into HMRC to deal with compliance? Does the Exchequer Secretary have an estimate of the cost to the Government? Is there any estimate of the cost to firms of complying with the additional paperwork? Firms are already having to do quite a lot of additional paperwork following Brexit.

[Kemi Badenoch]

I believe that the first question from the hon. Member for Erith and Thamesmead was about avoidance risk because of where we have set the de minimis threshold. As with other taxes, the Government intend to implement measures to prevent abuse—including anti-avoidance measures covered in later clauses, which I will come to—and, where appropriate, to enable HMRC to take action to tackle the artificial splitting of a business. Connected persons will also be treated as a single organisation in assessing whether they exceed the de minimis threshold.

On business readiness, awareness and the amount of support and guidance provided, which the hon. Member for Glasgow Central referred to, we have consulted extensively to ensure that businesses are ready. We have been discussing the measure for several years now, as the hon. Lady will remember from previous Finance Bills; it will be introduced in 2022. We are raising awareness through consulting on the tax, including through the technical consultation on draft legislation and through work with industry, which will help us to ensure that the regulations are fit and ready.

On administrative cost, we think that 20,000 manufacturers and importers of plastic packaging will be affected by PPT. For plastic packaging manufactured in the UK, the manufacturer must register for and pay the tax; for plastic packaging imported into the UK, the person on whose behalf the packaging is imported must register and pay. They will usually be the consignee on import documentation, but where a consignee or co-signee can demonstrate that they are acting on behalf of another business that owns the goods, as in the case of freight forwarders, the owner must register an account for the tax.

We have looked at all the measures to ensure that businesses are ready and that costs are proportionate, and we feel that we have struck the right balance.

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[Abena Oppong-Asare]

It is good to have reached the end of the plastic packaging tax clauses. I will speak briefly to our two amendments. Amendment 22 would amend clause 84 to improve scrutiny by making all regulations subject to the affirmative procedure and to prevent use of the made affirmative procedure. Amendment 21 would require consultation on all regulations and require that, in exercising powers, regard must be had to the principles of the waste hierarchy and the need to promote the circular economy.

These amendments simply make the point that I made earlier: much of the detail of this tax will be determined by regulations, and the Government must ensure that they are open to as much scrutiny as possible. The packaging industry will need to be consulted at all stages to ensure that the technical details of the tax work effectively. Environmental groups also need to be consulted, to ensure that the tax fulfils its purpose: to encourage the use of recycled plastic, to increase levels of recycling, to reduce the amount of waste going to landfill and to protect our natural environment. I hope that the Government will take on board the points we have made in Committee as they take this forward in the next year.

[Alison Thewliss]

I very much agree with the Opposition’s amendments. It is clear that, even with all the consultation that the Government say they have done and all the extensive behind-the-scenes work, concerns will still be raised. It is important that, as we move forward with the regulations and other things, we continue the scrutiny in this House to ensure that we get it right and that those who have concerns about the policy can raise them through elected Members in a public forum. I very much agree with that.

I also very much agree with the point relating to environmental non-governmental organisations and other relevant organisations that may still have concerns that have not yet been addressed, despite the extensive discussions that we have had this afternoon. Involving them as we go forward is crucial.