OPINION: If Jeremy Hunt is scrabbling for revenue-raisers to fund personal tax cuts in this year’s Spring Budget, he could achieve a quick win by clamping down on landfill tax evasion and bringing the rate back in line with inflation.
The failure of landfill tax to keep up with inflation has cost the Treasury £400m over three years, while weak enforcement also costs the country an estimated additional £150m every year in lost revenue.
In 2014, following 15 years of above-inflation rises, the government announced that landfill tax would rise every year in line with RPI. In reality, this has not been the case due to a quirk of bureaucracy.
The problem is that rates are currently set based on forecasts rather than actual RPI, meaning the calculation has missed spikes in inflation over the past two years. Landfill tax was set at £94.15/tonne in April 2020. Today it is £102.10 a tonne. But it would be £121.16/tonne if it had risen with actual RPI. Therefore, landfill tax rates are now 19% below where they would have been had they maintained their previous real-terms trend in line with RPI since April 2020.
This has eroded the competitiveness of all waste treatment and recycling facilities and diverted more waste to landfill, the opposite of the intended outcome.
To correct this, the Treasury can adjust the landfill tax rate mechanism so it is based on actual RPI, which simply means the stated government policy is delivered in practice, and return the tax rate to £94.15/tonne in 2020 prices – or £121.16/tonne in Q3 2023 prices.
Plastic packaging tax
Furthermore, as well as supporting circular economy goals, adjustments to the Plastic Packaging Tax are crucial to help all those involved in recycling and waste treatment to reduce future liabilities associated with another looming fiscal policy driver facing our sector – the Emissions Trading Scheme (ETS) – in 2028.
The Environmental Services Association welcomed the Plastic Packaging Tax in April 2022, but this policy needs to go further because, in the current economic climate, it is not delivering on its potential and greater market demand stimulus for recycled plastic is needed to support decarbonisation of residual waste treatment.
Introducing a 50% recycled content mandate for plastic packaging, up from the current 30%, will stimulate domestic demand and ensure that more material is recycled. We already have targets to collect 62% of plastic packaging for recycling by 2030 so a 50% requirement aligns these targets and accounts for loss during recycling.
Alongside this, we also believe that the tax rate should increase progressively over a ten-year period from the current rate of £217.85/tonne (from April) by £25 per tonne every year, until it reaches £500 per tonne. This level will not only ensure the UK keeps pace with our European neighbours but will also encourage sustainable and persistent behaviour change from packaging producers while protecting recycled material from decreases in oil prices.
Even with the above rate rises, we estimate that plastic packaging manufacturers would see only a very small cost increase per unit even in the event that they choose not to use recycled content – which of course is avoidable. While we would hope that raising rates to this level will drive the desired behaviour change and circular economy outcomes, if it doesn’t, the additional revenue supports future budget tax gifts. A win-win for Government.
Our sector has demonstrated that it responds very well to fiscal policy drivers
Modern recycling and waste management exists in response to its regulatory environment and our sector has demonstrated that it responds very well to fiscal policy drivers to deliver positive change. While the focus of this week’s Spring Budget is, as ever, on tax cuts, our sector is possibly unique in calling for carefully calculated tax rises to ensure we can continue to protect the environment, deliver a circular economy and contribute to net-zero goals.
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