Taxation: Silage Film

Nigel Mills Excerpts

Tuesday 18th January 2022 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

I beg to move,

That this House has considered taxation of silage film.

I am grateful for the chance to raise these issues in debate. Before we begin, I am not seeking to question or doubt the merits of the plastic packaging tax, which I fully support, along with all efforts to make sure that as much plastic as possible that we use is recycled. My concern is shared by many colleagues, plastic manufacturers and farming industries: guidance was—I could say sneaked out—released by Her Majesty’s Revenue and Customs just before Christmas, and unexpectedly added silage film to the list of items caught by that tax. That was not a position that anyone expected. Industries had not prepared for that, and the costs will fall directly on farmers at a very difficult time for them.

My interest in this stems both from the fact that there is a collection of farmers in Amber Valley who use silage film and from the fact that I have a large employer who uses recycled plastic pellet to make, among other things, refuse sacks for the NHS and damp-proof membrane for construction products. The irony of the situation is that, in the years in which I have been an MP, the main problem that that business has had is securing enough plastic to wash at a different plant and recycle so that it can use it in its production process. The best source of plastic that it can get is silage film, which is being exported illegally as clean waste around the world, rather than being washed and recycled at home. Our enforcement bodies were not enforcing the law that was in place, so we are in a rather strange situation. The industry has been investing, and has been keen to recycle the film for years, and if we ended up by accident with a new tax that the Government introduced to try to encourage more plastic recycling it would stop the recycling of that film so we would end up in a worse position. I am sure that that is not what the Government intended.

I have four arguments for the Minister as to why the HMRC guidance should be corrected or withdrawn before 1 April. First, the primary purpose of silage film is not packaging—it is to ensure that harvested grass can be fermented into silage. Secondly, the purpose of the plastic packaging tax is to encourage the use of recycled material and increase the recycling of plastic material. Extending the charge to silage film will not generate more use of recycled material in the film, and will lead to less recycling of the film that is used. Thirdly, I am not sure that silage film falls within the definition of the measures that were introduced in the Finance Act 2021, so the guidance is incorrect and inconsistent with the law. Fourthly, I contend that this is seriously damaging for our farming industry at a difficult time, and would reduce its competitiveness against international rivals. All of those cases are strong reasons why the guidance, which appears to be out of sync with what had been planned, should be withdrawn.

The first case I should like to make is about the primary purpose of the silage film. I would not claim to be an expert on silage or its creation, but the information that I have had from the National Farmers Union, for which I am grateful, and from other farming bodies, is that the film is very specialised. It is very thin. Generally, contractors go on to farms and, in simple terms, mow the grass and wrap it in film so that is airtight and watertight, so that fermentation can take place and produce silage to feed animals through the winter. If that film is not airtight and watertight, the grass will rot and cannot be fed to animals. That is quite a technical process and the film is an expensive and highly specialised product. It cannot be any old plastic: it has to be a very thin film that is air and watertight, and that can survive being used to wrap on a farm in those conditions, rather than in a nice, safe factory setting.

The main aim of using that film is not simple wrapping or packaging to store the grass; there is a much greater purpose of converting the grass into something that can be used to feed animals through the winter. If that plastic does not fulfil that purpose, there will be no food for animals and we will have to import soya or other foods from around the world to get them through the winter.

[Robbie Moore (Keighley) (Con)]

I should declare that while I am not one, my family are farmers and have a plastic recycling business. I want to pick up on the point that my hon. Friend is eloquently making about the nub of the issue: silage wrap should not be classed as packaging but is integral to the grass fermentation process to make silage. Does he agree that our colleagues at the Treasury need to realise this very fine point so that legislation and taxation can be addressed accordingly?

[Nigel Mills]

I am grateful to my hon. Friend for making that point, with which I entirely agree. It is not a point that the Government have ever challenged in the past. Only last year, the Environment Agency published a paper on the positions and technical interpretations in respect of responsibility for packaging. On page 31, the document accepts that the primary function of silage wrap is producing the product. I accept that it is a different Government Department, but it has accepted that the primary function of silage wrap is to produce silage, not to package, store or protect it. The Minister may argue that that is a different Department and that it is not Treasury policy, but we are trying, on a cross-Government basis, to reduce the amount of plastic that is used and encourage the use of recycled plastic and of recycling. We have measures coming in to make the producer pay for the collection and recycling of their packaging material through the whole system. It seems bizarre that the Treasury, HMRC and the Department for Environment, Food and Rural Affairs have different definitions of what counts as packaging in that situation. People come under one set of rules but not the other, even though they are charging for similar sorts of things. I hope that we can achieve consistency across Government.

If the Minister is not convinced by that compelling argument for consistency across Government, I refer her to a 2018 HM Treasury consultation on tackling the plastic problem that concluded that silage film came into the category of non-packaging plastics. Even the Treasury has, in the past, accepted that silage film is not a packaging plastic. I therefore hope that there is no doubt that the primary purpose here is not simple packaging. Looking through the list of items that fall inside and outside this tax, one of the general themes is the primary purpose of the plastic. It is hard to see from that list why silage film has been treated inconsistently with other plastics that are excluded.

My second contention is that what has been done here is contrary to the policy intent. The guidance notes set out that the plastic packaging tax was designed to encourage to the use of recycled plastic instead of new plastic material in plastic packaging. In turn, the tax would create demand for recycled plastic and stimulate increased recycling and collection of plastic waste, diverting it from landfill or incineration. That is the Government’s own stated intent. Because of the very specialised nature of the film––which has to be incredibly thin, light-proof and waterproof, and capable of achieving those things when being used for wrapping in a farm setting––the industry and farming lobbying bodies are absolutely clear that there is no way any level of recycled plastic can be used in that film with current technology and achieve the effect needed for the fermentation of grass. No matter what this tax is from 1 April, there will not be any quantity of recycled plastic incorporated in the film, as that is not technologically possible at the moment. Therefore, including silage film in this tax will not generate increased use of recycled plastic; it will simply be a tax on farmers that they can barely afford to pay, given their current situation.

[Douglas Ross (Moray) (Con)]

I am grateful to my hon. Friend for giving way, and for his well-researched and detailed speech. I should also declare an interest; although I am no longer a farmer, before I came to this place I was involved in farming, and silage is an integral part of farming across the United Kingdom.

I am here today to express the views of the National Farmers Union of Scotland, which has made many of the points that my hon. Friend has made today. On recycling, does he accept that agriculture accounts for only 3% of plastic use across the United Kingdom, that silage film is just a small proportion of that, and therefore that we are seemingly taking a sledgehammer to crack a very small nut here?

[Nigel Mills]

I am grateful to my hon. Friend and I agree with him.

I was trying to establish that levying this tax would not actually increase recycling, because silage film cannot include any recycled components. In fact, the tax may make the recycling situation worse, because there have long been efforts to get a collection scheme in place for this waste. It is obviously expensive to go and collect the film from every single farm; it becomes hugely dirty, and collecting it is not cheap.

In recent years, a voluntary scheme has been put in place to collect this plastic so that it can be recycled. That has a cost to farmers of about £60 a tonne. The impact of charging farmers £200 a tonne to get the plastic in the first place will be that they will not be able to afford the £60 a tonne for collection, so we will end up with lower levels of recycling; the farmers just will not pay for collection, so there will not be a collection and the plastic will not be recycled. Consequently, as a result of the tax, we will end up with less recycling of plastic than we have now.

I am sure that the Government’s sincere aim is to have more recycling of plastic. However, by far the best approach would be not to include this film in the taxation regime but instead to try to support the voluntary scheme, to get as much of this stuff collected as we can. It is actually very recyclable, making it very valuable; it can be recycled and reused in other products, including those made in my constituency.

My third argument was that silage film would not fall within the definitions set out in section 48 of the Finance Act 2021, which defines a “packaging component” as

“a product that is designed to be suitable for use…in the containment, protection, handling, delivery or presentation of goods at any stage in the supply chain of the goods from the producer of the goods to the user or consumer.”

What happens with silage film is that the grass and so on is mown and harvested in the field, and it is then wrapped in the field, stored on the farm and subsequently fed to the farmer’s animals in the winter season.

I am not sure whether it is possible to call grass that has been stored and fermented “goods”. It is not sold to anybody, it does not leave the farm, and there is no “supply chain” for it at all. It is not packaged to be moved, presented or anything else; it is basically just there to be fermented. Once it has fermented, the plastic is taken off and the silage, as it is now, is fed to the animals on that farm. I am not sure how it can be said that there is a “supply chain” for silage when the grass never leaves the farm. It therefore looks to me, on first principles, that the published guidance of Her Majesty’s Revenue and Customs is not consistent with the law that Parliament passed last year.

The irony, of course, is that the Government have had to introduce a statutory instrument—I think that it is S.I. 2021, No. 1417—to modify the law that we have introduced but that has not yet come into force, in order to try to be clear about what we intended to catch in this situation. I do not have any criticism of that. This is a whole new tax; we want to get it right, and it is more important for us to get it right than to be precious about not correcting our own law. I therefore fully support those changes.

However, the guidance note for the changes sets out, in paragraph 7.4:

“This is to ensure that the tax applies to products which are primarily packaging rather than products whose function as packaging is incidental to their main purpose”.

So the Government are introducing changes to section 48 of the Finance Act 2021 to exclude products whose primary purpose is not packaging; indeed, the packaging is

“incidental to their main purpose”.

Therefore, it seems entirely clear to me that what the Government have been trying to do in clarifying the law in that statutory instrument is exactly what I am arguing for silage film; I argue that it meets the definition in the guidance note of the sort of product that should not be caught by this tax.

It would be far better for all concerned if we clarified that now and had HMRC guidance that was, in my view, consistent with the law, rather than having to resort to litigation and tribunals to establish whether this tax should be collected. If that happened, we may end up with some manufacturers thinking that the tax was not due and not charging it, and some manufacturers taking the other view, and it may have to be resolved by the courts in a few years’ time. I would hope that we could get that clarified now, just over two months before the tax comes into force, so that we have certainty.

My final contention is about the impact of the tax on farmers at a difficult time for them. According to estimates, I think from the National Farmers Union or its Northern Irish counterpart, the £200 per tonne would increase the cost of silage film by roughly 10%—a cost that farmers’ rivals around the world, from where we import much meat, do not have to bear. That would be a blow to our farmers’ competitiveness against their international rivals. It would increase their cost base when they are already struggling, as many businesses are in the current economic climate. As I said, that is just a straight-through cost. There is no way of changing the formulation of silage film to avoid the cost by making it 30% recycled components. That cannot be done. It is just a straight cost for farmers, which is not what this tax was intended to achieve.

I therefore hope, on the basis of all of those arguments, that the Minister can give us some encouraging noises. It was never raised that silage film would be in the scope of the tax in any of the consultations, previous lists of products or discussions with the industry. I hope that the Minister can accept that adding it at a late stage was incorrect and was not appropriate. Its inclusion is inconsistent with the law, will not achieve the purpose of the tax and will be an unnecessary burden on farmers. I look forward to hearing her remarks.

--- Later in debate ---

[Helen Whately]

I am happy to get back to my hon. Friend on the conversations that have taken place with different sectors, including the agriculture sector, that were part of work done over the last couple of years on the introduction of the tax.

The definition is set such that it does not include plastic packaging products that are essential for goods to be used, such as coffee pods or asthma inhalers. However, where single-use plastic is required for something to be made, as is the case with silage, it does fall within the definition.

[Nigel Mills]

Will the Minister give way?

[Helen Whately]

I am conscious that we are short of time, but I will.

[Nigel Mills]

We are getting to a perverse situation where things such as coffee pods or perforated bags for boiling rice, which there is no need to use as rice can be cooked without the plastic and coffee can be made without single-use plastic pods, are exempt from the tax, yet silage film, which is an integral part of the process and which there is no way around using, falls within the tax. That is not achieving the objectives. It will seem bizarre to people that we exempt plastic coffee pods but not silage film. Plastic coffee pods cannot be drunk.

[Helen Whately]

I gave examples of some specific products where the plastic is inherently part of the product—ink cartridges would be another. I recognise that there are some kinds of plastic that are harder to make using recycled plastics. One objective of the tax is to improve the rationale and incentives for the development of plastic packaging that uses more recycled plastic, and to make sure that more plastic is recycled and re-enters the supply chain. Although that will not necessarily happen immediately, it is part of shifting the incentives to encourage businesses to innovate and develop those products. We are already seeing that; as my hon. Friend the Member for Amber Valley knows, Berry BPI is already making great strides in producing high-quality recycled plastic that can be used for a variety of purposes, including agricultural purposes. I know that other businesses are working on this and, with the incentives, more will follow suit.

In conclusion, I reiterate that we have worked closely with manufacturers, importers, the devolved Administrations and others affected by this tax at every stage of its introduction. HMRC has been working closely with the industry, and that has informed the development of the categories of products that are in and out of scope of the tax. I assure hon. Members that HMRC and the Treasury are continuing those conversations and listening to industry. I am confident that by incentivising innovation and encouraging new ideas across our economy, including in agriculture, we will ultimately achieve huge benefits for the environment, nature and the world.

Question put and agreed to.