In its August 2025 Monetary Policy Report, the Bank noted that 12-month CPI inflation rose to 3.5% in Q2, driven by rises in energy, food and administered prices.
In its analysis of food price inflation, the Bank highlighted EPR – shifting recycling costs to producers – as an emerging contributor to food inflation, estimating it could add “a little over 1.5%” to prices if fully passed through.
Food price inflation is projected to rise to 5.5% by end-2025, up from around 5% in Q3.
However, Defra’s 2024 Final Impact Assessment estimated that the impact of pEPR on CPI would be between 0.04% and 0.08%.
A government spokesperson commented: “The estimated impact of the Extended Producer Responsibility for packaging on overall inflation is less than 0.1%.
“Meanwhile, it will generate more than £1 billion annually to improve recycling collections, benefitting every household across the country. The confirmed fees producers will pay have fallen significantly our last estimates.”
Defra also suggested that pEPR will move the cost of dealing with packaging waste away from taxpayers to the businesses who produce the packaging.
Extended Producer Responsibility costs
In March 2025, environmental compliance scheme Ecoveritas warned that UK businesses that failed to submit their reports on time could be hit by “unnecessary costs” and financial instability.
The main cost for EPR “producers” in 2025 will be the payment of the base fee, expected to be invoiced in October by PackUK, the Scheme Administrator.
Defra released the final base fees in June 2025 alongside a Regulatory Position Statement.
A full list of anticipated payment values for local authorities across England, Northern Ireland, Scotland and Wales was also released.
The payments – most of which are in the millions – will be made to local authorities in November this year.
The government has said that the funding should be ringfenced to improve recycling and waste services.
Concerns over inflationary impact
The waste and recycling sector has reacted to the inclusion of pEPR in the Bank’s food price inflation assessment.
Paul Vanston, CEO of the Industry Council for Packaging and the Environment (INCPEN), said: “The joint challenge now … is to prove value for money to citizens through high packaging recycling performance in every council area, and optimised efficiency and effectiveness of local services everywhere across the UK.
“Pack UK’s six pilots with councils are set to demonstrate what can be achieved.”
Andrew Opie, Director of Food and Sustainability at the British Retail Consortium (BRC), added: “Defra will need to justify these increases to consumers by ensuring the investment leads to significant changes in recycling rates. It is also pivotal that the Chancellor avoids imposing further costs on retailers in her next Budget.
“Additional cost burdens will only fan the flames of inflation further, forcing households to pay even more for their weekly shop.”
Karen Betts, Chief Executive of the Food and Drink Federation (FDF), warned: “Food and drink inflation is rising noticeably again. This comes on top of new taxes and regulatory costs, like higher employer National Insurance Contributions and this year’s new packaging tax.
“Food and drink manufacturers try to absorb as many of these costs as possible to protect shoppers, but the fact is that making food and drink in the UK is more and more expensive to do.”
She called for decisive government action to “cut red tape and promote growth”, warning against further cost increases in the Autumn Budget.
FDF data released in May showed production costs rose by an average of 4.5% over the year to March 2025, with more than a fifth of manufacturers facing hikes of 10% or more.
Balancing sustainability goals with cost realities
William Gough, Operations Director at Wastepack, commented: “In a cost-of-living crisis, we must balance the need for more sustainable packaging with the financial pressures facing both producers and consumers.
“EPR’s modulated fees will drive more recyclable packaging, lowering compliance costs over time. Additionally, rising consumer demand for sustainable choices is a key driver of higher recycling rates, encouraging businesses to adopt packaging that supports a circular economy.”
Patrick Brighty, Head of Recycling Policy at the Environmental Services Association (ESA), said: “As the Bank of England notes in its forecast, global agricultural commodity prices and high UK labour costs are the larger drivers of food price inflation compared with the pEPR framework.
“Businesses and consumers can avoid the highest costs by adapting their production and spending habits to avoid packaging wherever possible and, where necessary, switching to widely recycled formats.”
“Many of our European neighbours have gone through a similar change without a dramatic or long term negative impact on food and drink prices,” added Robbie Staniforth, Innovation and Policy Director at Ecosurety.
“The best way for companies to avoid incurring the cost of local authorities picking up packaging from homes is to shift to reusable systems. In the long term, a shift to less packaging or reusable packaging should make food and drink prices cheaper.”
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