EPR prompts discussions on consumer costs

The government’s consultation on extended producer responsibility (EPR) closed on 4 June. James Langley examines how an increase to costs for producers could also hit consumers.

Reform of the producer responsibility regime for packaging will see producers cover a higher proportion of the cost of recycling of their products

The potential for an eye-watering increase to consumer costs under EPR reforms has prompted panic from some, despite praise for the system’s ambition.

Ostensibly, EPR places the financial cost of managing products once they reach end of their lives on producers.

The Department for Environment, Food and Rural Affairs (Defra) estimates producers will pay annual costs in the region of £2.7 billion in the first full year of the scheme’s implementation. This is made up of £1 billion for packaging waste collected from households, £1.5 billion for packaging waste collected from businesses, and £200 million for the management of bin and ground packaging litter.

Reform of the producer responsibility regime for packaging will see producers cover a higher proportion of the cost of recycling of their products

Under the proposals outlined in the consultation, local authorities will receive funding from obligated businesses to pay for the collection, sorting and recycling of packaging within the household residual waste stream.

Consumers

However, in a report published towards the end of May, compliance specialist Valpak said that consumers may expect to have at least some of the cost increase passed on to them (see letsrecycle.com story). Valpak suggests it is likely that at least some of the impact will filter along supply chains and down to consumers.

Valpak estimates the cost associated with an average shopping basket of goods may rise by up to 0.6% due to EPR (picture: Shutterstock)

Valpak’s consultancy arm’s calculations show that the cost associated with an average shopping basket of goods may rise by up to 0.6%. The total cost of EPR across a year could add up to as much as £100 per household when the total costs outlined by the four governments are divided by the number of households in the UK.

The cost to consumers was also raised at letsrecycle.com’s Resources and Waste Strategy Revisited conference in May by Paul Van Danzig, policy director at packaging compliance specialist Wastepack. He expressed concerns about how the public could react if a tabloid publication was to investigate the costs and run a sensationalist and scare-mongering story in opposition to the reforms (see letsrecycle.com story).

Market forces

David Daw, project analyst at Valpak, told letsrecycle.com that market forces would make it inevitable consumer costs would rise. “Competitive market forces will determine how much of the extra cost to business will eventually be passed onto the consumer. However, it is unlikely that they will be able to absorb it all.”

“Competitive market forces will determine how much of the extra cost to business will eventually be passed onto the consumer”

David Daw, Valpak

He suggested consumer choices and changes by businesses may help mitigate some of the costs. “Clearly consumers will have the ability to make purchasing decisions which can help reduce any costs they eventually pick up dependent on what they buy,” he said. “Businesses are already making operational changes to reduce packaging make it more recyclable and introducing reuse/refill systems which should help eventually to reduce costs to both them and the consumer.”

Market forces should dictate that those who raise their prices to try and mitigate the costs incurred through EPR could sell fewer products, while those who leave their prices as they are could see business improve.

Council tax

As a result of the potential cost increases, there have been calls from lobbying groups and producer organisations for there to be a reduction in council tax. If councils are no longer having to pay for the collection or disposal of packaging then they need less money from the taxpayer, or so the argument goes.

Local authorities will receive funding from obligated businesses to pay for the collection, sorting and recycling of packaging within the household residual waste stream (picture: St Helens borough council)

One advocate is Duncan Simpson, research director at the TaxPayers’ Alliance, a libertarian pressure group formed in 2004 to campaign for a low-tax society. He told letsrecycle.com: “Higher taxes on products, no matter how well intentioned, inevitably find their way to the consumer. Like the sugar tax and plastic bag levy before, these costs are passed straight on to taxpayers, who are already facing the highest sustained tax burden in 70 years.

“Incentivising producers to improve their wares, by cutting charges, is always more effective in the long term than hammering the consumers who buy from them.”

Responsibility

Another advocate is Dick Searle, the CEO of the Packaging Federation, the overarching trade association for the UK packaging manufacturing industry. Mr Searle described the EPR proposals as being “hugely significant for the supply chain and for the country” and said it was “inevitable” the costs would result in higher prices for food and drinks, a “no-brainer” for a sector with an average profit margin of 6%. This, he fears, could hit the poorest in society.

“Business is prepared to do its bit, but not all of it because we’re not responsible for society’s behaviour”

Dick Searle, the Packaging Federation

In Mr Searle’s opinion, the burden of EPR costs should rest with retailers and not producers, given they are the ones from whom consumers buy their products. He also believes consumers should take more responsibility for the disposal of their packaging waste. “Business is prepared to do its bit, but not all of it because we’re not responsible for society’s behaviour,” he said. “As a good friend of mine said, it’s meant to be extended producer responsibility, not endless producer responsibility.”

While he remains hopeful, Mr Searle does not believe there will be any kind of reduction in taxes. “Yes, we should expect to see council tax reduced. Will we see it reduced? No.”

‘Not justifiable’

However, Lee Marshall, CEO of the Local Authority Recycling Advisory Committee (LARAC), said arguments for reducing council tax were “not justifiable”. “Council tax is just one element of the council funding formula,” he said.

Lee Marshall said education and social services cost local authorities the most, at between 65-70% of an annual budget (picture: Shutterstock)

Mr Marshall explained the money raised through EPR would not correspond exactly with that which a local authority spent on waste services. Social services and education are said to cost local authorities the most, at between 65% and 70% of an annual budget. Waste collection and disposal are each estimated to cost councils just £1 per week per person.

Ten years of restricted budgets and cuts had already left council funds for vital services stretched, Mr Marshall said. He suggested local authorities could not pass on costs to consumers in the same way as businesses. EPR could provide struggling local councils with a welcome “shot in the arm”, he said.

There are worries local authorities could be left open to blame and recrimination from the public for the increase in prices to their annual shopping basket, but Mr Marshall appeared bullish about any such suggestion.

“The public will only blame local authorities if myths are peddled that council tax could be reduced,” he said.

Pressure

Mr Daw was circumspect, though he concurred that budgetary constraints could make cuts to council tax unlikely. He said: “In theory when the producers begin to pick up the additional cost of EPR from the council taxpayer it should lead to a reduction in charges for local waste services. It would then be a political decision whether to reduce council tax or not.”

“Due to the pressure council services have been under recently it’s easy to see this money being swallowed up to support other vital services”

David Daw, Valpak

He added: “Due to the pressure council services have been under recently it’s easy to see this money being swallowed up to support other vital services rather than passed back to the council taxpayer. It should be noted that the EPR funds are only meant to cover costs relating to packaging, not other materials. These costs will still need to be picked up by council tax or through central government funding.”

Mr Daw cited the costs associated with the collection of food waste, garden waste and non-packaging items that householders discard in their waste bin or as litter as examples.

Government response

It seems clear that unless pressure is applied from above there will be no reduction in council tax as a result of EPR. Through no fault of their own, council budgets are already stretched, and the money raised through EPR could go towards other vital services than waste.

The sector is now waiting to hear what government has to say about all the issues raised and concerns expressed as it assesses responses to its consultation documents.

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