Plastic Packaging Tax on Imports: HMRC Enforcement

Mark Pawsey Excerpts

Tuesday 17th October 2023 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

I beg to move,

That this House has considered HMRC enforcement of plastic packaging tax on imports.

It is a pleasure to serve under your chairmanship, Ms McVey. I am grateful for the chance, however long it might be, to raise this issue.

The tax has been enforced for about 18 months. As a Parliament, we are not brilliantly effective at reviewing taxes after we have introduced them to check that they are working how we intended. This is one of those unique taxes where the Environment Secretary said last week that she was disappointed at how much the tax was raising—I am not sure that she had checked with the Treasury before she said it. I will talk about an area where we could perhaps raise a little bit more money.

There is real concern in the industry about illegal imports which claim to have a sufficient amount of recycled plastic content, when that is not the case—and there is very little enforcement to try to work out whether it is or not. It is hard to do because we cannot look at stretch film—I actually have some here with me—and work out how much recycled content is in it: there are no tests that can be done. We need robust processes to make sure that the claims people are making have some basis, and they are following the rules.

I asked for this debate because the industry had a meeting with His Majesty’s Revenue and Customs, and the latter said that enforcement was not its job—I am afraid that under the law, it clearly is. The idea that the job can be passed on to someone at the border who can check a pallet and see what is in the cling film will not work. It needs to be a process-driven situation. The law was clearly written, there is “joint and several liability” on both the importer who brings in the plastic film and claims that it has recycled content, and on the people who buy it from them and place it on the market. There is a whole of collection of ways we can enforce this on them. We can ensure that the big retailers and manufacturers, the ones that have robust supply chains, are doing the work they need to do before buying this stuff, so that they can be sure that they are not buying something that is undercutting the market.

[Mark Pawsey (Rugby) (Con)]

Does my hon. Friend agree that, while the introduction of the plastic packaging tax was a really positive thing that ensured we got more use from recycled material, in this case, with no verification of products manufactured outside the UK, the grave danger is that we are doing a disservice to UK manufacturers?

[Nigel Mills]

That is the exact point that I am trying to make. We will not get more use of recycled content if we do not enforce the law and ensure that our domestic businesses are not undercut by the market. The fact is that plastic film that includes recycled content is 20% more expensive than using virgin polymer; that is why we need to have the plastic packaging tax. If we allow imports to enter which claim to contain that, and avoid the tax, clearly they can undercut the market for products that can be made here. That will mean that we cannot achieve the objectives that we want to achieve.

This is not a cheap industry to start up. If someone wants to mechanically recycle plastic so they can create 30% recycled plastic content, they need to have some very sophisticated machinery. It is a very difficult and intensive process, first to wash the plastic film, then shred it, and then turn it back into pellets, and the industry needs to invest millions and millions of pounds in the lines. This process happens in my constituency, and if the Minister wishes to come and see how it works, he is more than welcome.

We need enforcement to send the right signals out that it is safe to invest in this industry because there will be a market for the recycled pellet. Sadly, we have already seen at least one factory go bust because it could not find a market for its product, and others will be under threat.

We can be pretty sure that we have a problem because industry experts have assured me that there is no way that the film I have with me here, which is 12 micron film from India—film this thin, this strong and this stretchy—can be made with any recycled content. It is technically impossible with mechanical recycling to get the film either clear enough or strong enough to work like the film I have here does. If I tried to stretch film with recycled content, it would just tear. We can be absolutely sure that wherever the film I have is coming from, it is not complying with our plastic packaging tax.

I want to raise with the Minister, in the time we have, some questions about HMRC’s enforcement strategy, the work it has done so far, and how we can get the message to people buying this stuff that they are committing an offence, and that there is a risk that they will be caught, with significant financial and reputational penalties. All manner of businesses using this stuff on their products would be horrified to find out that it has no recycled content. They are trying to comply with the law and want to be seen to be helping the environment by using recycled plastic. If we can get that message out, there is a real chance to improve performance.

[Mark Pawsey]

My hon. Friend is being generous with his time. If we know that shrink and wrap films are not using recycled content, why can it not be assumed that an imported product does not contain 30% recycled material? A piece of paper that is produced by an overseas manufacturer cannot possibly be evidence. Although it is unreasonable to expect HMRC inspectors to visit plants around the world, if we know that there cannot be recycled material in it, why can that not be the assumption?

[Nigel Mills]

I strongly agree that we could beef up the HMRC guidance. HMRC has published guidance on the due diligence checks that businesses buying this plastic film should make. It does require something stronger than just asking for a certificate.

My hon. Friend is right: if I were buying film from a reputable company in Germany that had all the accreditations under German and EU law, and had the annual inspections that we require in the UK to prove its process complied with the rules, we could be quite relaxed about that. That is fair competition and fair imports. Where we have a much greater issue is when we import from the Pacific rim without those standards and inspection in place. How could anyone be sure that the piece of paper represents anything? Even if it represented something when it was first granted, how can anyone be sure it has been complied with? That is especially when what is coming in cannot possibly comply and there is no way that could happen.

I request the Minister to provide guidance or a list of territories where there could be a lower risk approach, and those territories with a higher risk approach if buying film sourced from there, and assume that the plastic packaging tax applies. It would be quite straightforward to work out which countries have an equivalent standards and inspections regime to ours, and be a little softer on enforcement for those, and which countries do not have that, where there should be a high-risk approach.

It is effectively tax avoidance, bordering on tax evasion. Buying a product that undercuts the market price in the UK, which research shows cannot be technologically produced in a way that meets UK standards, and turning a blind eye thanks to a piece of paper, is not behaviour that we would accept anywhere in the tax code as competent due diligence and an attempt to comply with the tax. There is progress we could make there.

--- Later in debate ---

[The Exchequer Secretary to the Treasury (Gareth Davies)]

It is a great pleasure to see you in the Chair, Mr Davies.

Let me congratulate my hon. Friend the Member for Amber Valley (Nigel Mills) on securing this debate on the plastic packaging tax. This world-leading environmental tax is designed to incentivise businesses to use more recycled plastic packaging in their production. As has been said, the manufacturers and importers of plastic packaging that does not contain at least 30% recycled plastic are liable for a new tax.

The plastic packaging tax is one of a series of measures to drive more collection and recycling of plastic waste, helping us to reach our ambitious target to eliminate all avoidable plastic waste by 2042. However, I recognise that some people make false claims about recycled content in packaging and do not pay the taxes they owe, and they not only undermine important environmental objectives, but create an unfair and uneven playing field for businesses that are trying to do the right thing. That was why we consulted extensively to get all aspects of the tax design right, including taxpayer obligations and the evidence required to back up claims of recycled content. It is also why, since the plastic packaging tax was introduced in April last year, HMRC has been actively helping businesses to understand their obligations, and developing a comprehensive enforcement and compliance response to identify and tackle any non-compliance.

As I have mentioned, the tax applies to plastic packaging that is either manufactured in or imported into the United Kingdom, including plastic packaging that is already filled at the time of importation. Following extensive consultation, the tax includes a de minimis threshold of 10 tonnes of packaging per year, which is intended to avoid placing a disproportionate administrative burden on businesses that would outweigh the environmental benefits. This means that many small importations of plastic packaging will be out of scope of the tax.

I want to address some points about evidence requirements. In designing the tax, it was important that we struck the right balance to ensure that claims were credible, while avoiding placing a disproportionate burden on businesses. Essentially, the challenge is that there is no scientific test to determine the recycled plastic content of packaging. For that reason, businesses are legally required to hold a body of evidence that shows the origin and content of recycled material, the details of manufacture or import of the individual plastic packaging components, and the proportion of recycled plastic in the outputs from the recycling process. As there is no one-size-fits-all approach, the type of evidence required is not prescribed—there is not one certificate. There can be a range of evidence, such as contracts, certificates and purchase orders.

Let me directly address some of the specific comments made by my hon. Friend the Member for Rugby (Mark Pawsey), who spoke about importers, as did the shadow Minister, the hon. Member for Ealing North (James Murray). We recognise that importers are a higher risk and must demonstrate the same standard of record keeping as UK manufacturers. Where businesses do not have or hold sufficient evidence for us to inspect, they must not declare that their packaging contains at least 30% recycled plastic, and they must pay PPT.

In addition, HMRC has a range of enforcement and inspection powers at its disposal, as well as sanctions and penalties, but the Government have also gone further by improving the legislative environment to introduce criminal offences for businesses that evade PPT. In a minute, I will come on to what action HMRC has already taken in that area, because several colleagues have asked for that information.

[Mark Pawsey]

The Minister has acknowledged that, for reasons of safety, food contact applications cannot, by their very nature, include recycled material. I wonder whether he would accept that the plastic packaging tax should automatically apply to any imports of material used where food contact is involved.

[Gareth Davies]

To be clear, the presumption is that businesses need to demonstrate that they meet the threshold to have relief from the tax. If they cannot do that, they must pay the tax. That is clear, and I hope that that answers my hon. Friend’s question.

Businesses are also required to carry out due diligence on their supply chains and to demonstrate to HMRC what checks have been carried out in their supply chains. HMRC can and will challenge claims from businesses, and is doing so, and anyone in the supply chain can be held liable. When assessing that liability, HMRC will consider due diligence checks undertaken to ensure that the supply chain has taken appropriate steps.

My hon. Friends the Members for Rugby and for Amber Valley both talked about false and fraudulent claims. We are alive to that issue, particularly as it relates, as they pointed out, to the content of recycled plastic. We understand that that is a serious impact for businesses that are just trying to do the right thing, as I said at the beginning.

To embed the tax, HMRC delivered a wide-ranging communications programme that targeted both domestic manufacturers and importers of packaging. It focused on making them aware of the requirements and supporting them to comply with those. Recognising that some businesses may need more time to fully understand their obligations under the new tax, HMRC went even further and allowed a 12-month soft landing period, during which the focus was on education and support for businesses.

Now that that period has ended, businesses must ensure that they have gathered appropriate evidence, filed their returns and paid on time. Although HMRC continues to support businesses, it is now also focusing its efforts and targeting its resources on the areas of highest risk and non-compliance. The tax has been in place for 18 months, so HMRC now holds more data from tax returns to inform risk profiling and emerging trends. Its data-driven approach will help to identify and target instances of error and non-compliance. I will come on to what action has been taken in a second.

As with general taxation, HMRC’s compliance activity for PPT draws on a test and learn approach. That moves through various phases, and approaches can change depending on what HMRC learns along the way. Largely, it has concentrated on targeting unregistered businesses that may have a liability and on developing a better understanding of the plastic packaging tax population, particularly given the tax is so new, to build a risk compliance approach.

I want to address the question of registration. To reiterate, over 4,000 businesses have registered for the tax in 2022-23. We concede that that is lower than the initial estimate of 20,000, but that estimate was made before the final policy decisions on the tax were made. We were very clear that the estimate was always subject to a lot of uncertainty. HMRC continues to engage with businesses and hold them to account. I am pleased to say that, since the tax was launched, 250 additional businesses have now registered with HMRC.

Businesses found to be negligent or cheating the system will incur penalties in addition to the tax due and can face liabilities of up to 100% of the tax due. They can also face legal action to recover the tax; in the most serious cases, as I have said, criminal prosecution may take place. My hon. Friend the Member for Amber Valley asked for statistics on this. I can tell him that so far HMRC has contacted 2,000 businesses proactively and conducted 400 interventions on compliance since the tax went live. So far, £3 million has been recovered as a result of that action. I point out that HMRC will always be open to receiving any information or evidence where businesses or individuals feel that compliance is not in order.

Non-domestic Energy Support

Mark Pawsey Excerpts

Monday 9th January 2023 Commons Chamber

[James Cartlidge]

The hon. Lady makes an important point. I know from my own constituency that sub-post offices are incredibly significant in our communities. These days, they are often where we do our banking as well as our shopping and everything else—that is certainly the case in some of my villages.

Sub-post offices are not in the intensive scheme. The level of support that they receive will therefore be less generous; we are being absolutely open and transparent about that. That is because there is a balance to be struck. If we are to be fiscally responsible, making something universal will by definition mean making it less generous than if it were targeted narrowly. We have tried to strike a balance, with more generous support for those sectors that are exposed to international competition and find it much harder to pass on higher costs. At the same time, although it is less generous, our support for the rest of the economy is still significant. That includes sub-post offices.

[Mark Pawsey (Rugby) (Con)]

Businesses have certainly appreciated the support that they have had over the past six months through the energy bill relief scheme, but businesses like and want certainty. The Minister will know that his announcement today has therefore been eagerly awaited. The 12 months of support that he is providing will go a long way, and I welcome the additional support for energy-intensive businesses. He spoke about businesses being in scope; I know that he has been challenged already today, but could he say a little more about where businesses can find the definition of “in scope” to identify whether they qualify?

[James Cartlidge]

My hon. Friend speaks with great knowledge of manufacturing, which is very important in his constituency. I am glad that he welcomes the 12-month duration, which I agree is important: it is what businesses were calling for, and it gives them extra certainty. I am afraid that I do not have the exact “www” off the top of my head, but hopefully it is live on gov.uk; I look nervously at my officials. There will certainly be a list on gov.uk at some point today. Is it live? [Interruption.] Noises off and a nod from the officials tell me that it is now live on gov.uk. I will tweet the exact address in due course.

Autumn Statement

Mark Pawsey Excerpts

Thursday 17th November 2022 Commons Chamber

[Mark Pawsey (Rugby) (Con)]

My constituents in Rugby and Bulkington will not enjoy the tough decisions that the Chancellor has had to make today, but they will understand the need for sound finances after the huge expenditure that the country has made on the pandemic and supporting people with their energy costs as a consequence of the war in Ukraine. They will also want to know that businesses will continue to invest to grow and to create jobs. Will he speak about the incentives that still exist for businesses to do exactly that?

[Jeremy Hunt]

I am happy to do that. My hon. Friend is quite right to raise those issues. We are doing a lot of short-term things, including help with energy bills as well as business rates. As we move to a new business rates system, we are freezing the levels at which business rates can increase and introducing a 75% discount next year for retail, hospitality and leisure businesses. Fundamentally, as a Conservative Government, we know that we cannot flourish as an economy without flourishing small businesses, and we will back them to the hilt.

Oral Answers to Questions

Mark Pawsey Excerpts

Tuesday 11th October 2022 Commons Chamber

[Felicity Buchan]

We are very much committed to the sector, and I would be delighted to sit down with my hon. Friend to discuss this further.

[Mark Pawsey (Rugby) (Con)]

A key part of levelling up is the creation of investment zones, and the Chancellor will be aware of the proposals for a gigafactory at Coventry airport to support UK automotive manufacturing. Does the Minister agree that the joint application by the Labour Coventry City Council and the Conservative Warwickshire County Council for an investment zone at Coventry airport should be encouraged?

[Felicity Buchan]

We are encouraging all higher and local authorities to look at the investment zones and to apply. I think they are a great tool for development, so I would absolutely encourage that application.

Oral Answers to Questions

Mark Pawsey Excerpts

Tuesday 17th May 2022 Commons Chamber

[Mark Pawsey (Rugby) (Con)]

T3. On new year’s eve, my constituent Jamie Rees suffered a cardiac arrest and died, quite simply because the nearest defibrillator was not available—it was locked up in a school building at the time. In his memory, Jamie’s mum, Naomi Rees-Issitt, has set up a JustGiving page called “OurJay” to provide externally mounted defibrillators in and around Rugby, but she points out, quite reasonably, that it should not be left to grieving families to provide them and there should not be a postcode lottery in their availability. What funding can the Government provide to make more defibrillators available?

[The Financial Secretary to the Treasury (Lucy Frazer)]

I thank my hon. Friend for his question and extend my heartfelt condolences to Naomi for the loss of her son. My hon. Friend may be interested to know that NHS England and NHS Improvement, along with the British Heart Foundation, Resuscitation Council UK and the Association of Ambulance Chief Executives, have developed the Circuit, which is a national defibrillator network that will register defibrillators in the UK and provide an overview of where they can be found. I know that the Chancellor and the Prime Minister are interested in this issue, as I met the Prime Minister with my hon. Friend the Member for Rushcliffe (Ruth Edwards). It is indeed an important issue.

Oral Answers to Questions

Mark Pawsey Excerpts

Tuesday 26th January 2021 Commons Chamber

[Rishi Sunak]

I am happy to look at the specific question the hon. Lady raises, but she will know that in the last Budget we introduced a manifesto commitment to bring in neonatal leave, which was warmly welcomed and many had campaigned for, and I know will make a difference to families up and down the country.

[Mark Pawsey (Rugby) (Con) [V]]

  We have heard many times this morning about the very welcome support the Chancellor has provided to hospitality businesses required to close during the pandemic. However, suppliers to the sector are dependent on its success, and many have seen dramatic falls in sales. Ahead of getting hospitality up and running again, is there any additional support he can provide at this particularly challenging time?

[Kemi Badenoch]

My hon. Friend raises a point mentioned by several Members about the difficulties businesses in the hospitality sector and their supply chain have faced during the pandemic. He can tell his constituents that £1.6 billion is being made available for local authorities to support businesses that are ineligible for closed business grants but that may still be impacted by restrictions, and local authorities have discretion to determine how much funding to provide to businesses and the flexibility to target local businesses that are important to their local economies, which could include businesses in the supply chains for retail, hospitality and leisure.

Spending Review 2020 and OBR Forecast

Mark Pawsey Excerpts

Wednesday 25th November 2020 Commons Chamber

[Rishi Sunak]

I can give the right hon. Gentleman that assurance. Those are UK-wide programmes and we hope to have more details about the infrastructure bank in the spring, so that we can get it up and running, at least in shadow form, as quickly as possible and make a difference to communities all around the United Kingdom.

[Mark Pawsey (Rugby) (Con)]

May I first join my hon. Friends in expressing concern about the proposal to reduce overseas aid, but welcome today’s announcements in particular on infrastructure, apprenticeships and research and development, which will create wealth and jobs? I also welcome the substantial support that the Chancellor has provided to help businesses and people get through coronavirus. However, my constituents know that those measures will all have to be paid for, so can he assure them that when this economic emergency is over, he will return to a policy of balancing the books?

[Rishi Sunak]

My hon. Friend is absolutely right. Although it is right to act in this way during the crisis, it would not be a sustainable way to operate. The important thing to know is that right now the focus should be on supporting businesses and jobs; but once our economic recovery is secure, we can turn our task to making sure that we have a strong set of public finances.

Oral Answers to Questions

Mark Pawsey Excerpts

Tuesday 15th September 2020 Commons Chamber

[Rishi Sunak]

It is right that companies pay the tax that they owe the Exchequer so that we can fund the public services that all our constituents rely on. That is why this Government instituted the digital services tax for online companies, which came into force this year. We remain committed to that tax, although we work with our partners around the world to replace our unilateral one with a multilateral solution through the OECD that will properly tackle this issue once and for all.

[Mark Pawsey (Rugby) (Con)]

Businesses in Rugby and Bulkington have told me universally how they welcome the measures that the Government have introduced for their speed and their breadth, but they know that the coming months will be difficult for trading and there are tough times ahead. Which of the Government’s measures, given limited resources, does the Minister think are the most appropriate to support businesses over the next few months?

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

The Government have a range of schemes that have been supporting businesses throughout the pandemic, as my colleagues have mentioned time and time again. If my hon. Friend has specific requests from the businesses in his constituency, I am very happy to discuss those with him so that we can work out the best way to continue to spur economic recovery.

Economic Update

Mark Pawsey Excerpts

Tuesday 17th March 2020 Commons Chamber

[Rishi Sunak]

On the processing of the cash grants, as I have said, my right hon. Friend the Communities Secretary is working on this at pace. It will require local authorities to write to the recipients of small business rate relief to collect their bank details, which they do not hold centrally, so that they can then provide the cash payment, but I can assure the hon. Member that that work is happening at pace.

[Mark Pawsey (Rugby) (Con)]

Businesses in the hospitality sector will appreciate the relief the Chancellor has given on business rates and the cash grants, but can I raise the question of suppliers to the sector, many of which have seen their sales fall off a cliff? In particular, there are those with short-dated products, such as Wood Farm micro-brewery in my constituency, which produces an excellent product but has £20,000 of short-dated stock with four weeks’ life left on it, and stands to bear a pretty substantial loss as a consequence. Is there something that can be done to support businesses such as these?

[Rishi Sunak]

I thank my hon. Friend for raising that particular case, and I am happy to have a look at it.

Oral Answers to Questions

Mark Pawsey Excerpts

Tuesday 5th March 2019 Commons Chamber

[Mel Stride]

We are most certainly not ignoring those businesses—or indeed businesses from a variety of different sectors up and down the economy. We have been deeply engaged with business, through the Treasury, the Department for Business, Energy and Industrial Strategy and other Departments. I can assure the hon. Gentleman that, for example, on the issue of just-in-time deliveries and the flow of trade across our borders, we have done an immense amount of work to prepare for the possibility of a no-deal exit to make sure that we protect the very companies to which he refers.

[Mark Pawsey (Rugby) (Con)]

8. What fiscal steps he is taking to help reduce the amount of single-use plastic waste in the environment.

[The Chancellor of the Exchequer (Mr Philip Hammond)]

We are acting to tackle single-use plastic waste at source by introducing a world-leading tax on plastic packaging. The tax, which I announced at the Budget, will provide a clear economic incentive to business to use recycled plastic and, alongside the reform of the plastic producer responsibility system by the Department for Environment, Food and Rural Affairs, it will transform the economics of sustainable packaging. The Government recently published consultations on the detail of both measures, alongside consultations on consistent waste collection and a potential deposit return scheme for beverage containers. We are determined to be the first Government who leave the environment in a better state than they found it in.

[Mark Pawsey]

I hear what the Chancellor is saying, but in setting policy will he recognise the positive role that plastic packaging plays in reducing cost to consumers by protecting goods in transit and in reducing the environmental burden of food waste by keeping food fresher for longer?

[Mr Hammond]

The points my hon. Friend makes are well made, and of course this is about getting the balance right. The Government recognise that plastic packaging can play an important role, but we want to reduce the environmental impact of single-use plastic waste and encourage more sustainable forms of plastic packaging that can be recycled. The packaging tax will encourage businesses to use more recycled plastic in the production of packaging and will therefore drive a more sustainable packaging industry.