£2bn Packaging Tax Faces Rethink As War-Driven Costs Push Food Prices Higher

Ministers are reviewing a £2bn environmental packaging levy amid concerns it could add further pressure to household grocery bills.

The government is said to be looking again at the extended producer responsibility (EPR) scheme, which makes food producers and online retailers pay charges linked to the packaging used in the products they sell.

The review forms part of wider discussions in government over how to limit the economic impact of the war in Iran on UK consumers, as rising energy and commodity costs threaten to push food inflation higher.

The Bank of England has warned inflation could climb to 6.2 per cent by the start of 2027, while food inflation could rise as high as seven per cent.

Industry figures have previously warned that the EPR scheme could add up to £56 a year to household costs, as businesses pass on some of the extra costs to shoppers.

The levy is expected to raise £1.4bn for councils, with the government insisting it will shift the cost of dealing with packaging waste away from taxpayers.

However, critics have described the policy as a “shopping stealth tax”, arguing it will increase costs for food manufacturers, retailers and consumers at a time when grocery bills are already under strain.

The industry has claimed the levy is equivalent to around 12p for every glass bottle or jar sold in supermarkets, and up to 6p for plastic containers.

British Retail Consortium food and sustainability director Andrew Opie urged ministers to reduce the burden on retailers and households.

“Once again, the public faces a cost-of-living squeeze, as the ongoing energy shock pushes up the price of food and essentials,” he told The Times.

“Government cannot fix the Middle East situation, but it can take action to help retailers hold down prices for their customers.

“Government should review the triple packaging taxes, reducing the burden of its new EPR packaging tax, temporarily pausing the plastic packaging tax and scrapping the broken packaging recovery note scheme, which together push up the cost of shopping for households.”

The war in the Middle East has already driven up oil and gas prices, while disruption to fertiliser exports is expected to place further pressure on global food supply.

The blockade of the Strait of Hormuz has triggered a crisis in the global fertiliser market, with between 40 and 50 per cent of global food production dependent on nitrogen-based fertiliser. Experts have warned that the effects could begin to feed through in around three months.

Food and drink manufacturers warned last month that shoppers could face average grocery price rises of up to 10 per cent by the end of this year.

The Food and Drink Federation had previously forecast that food inflation would ease gradually this year, falling to around 3 per cent by December.

Fresh produce including tomatoes, cucumbers, lettuce and asparagus is expected to be particularly exposed to rising costs in the coming weeks.

Darren Jones, chief secretary to the prime minister, said earlier this month that energy and food prices, as well as air fares, were likely to remain elevated for some time after the conflict ends.

“I think our best guess is eight-plus months from the point of resolution that you’ll see economic impacts coming through the system,” he said.

A government spokesperson said there were no plans to scrap EPR entirely.

“There are no plans to scrap extended producer responsibility, which moves the cost of dealing with waste away from taxpayers and generates over £1 billion annually,” they said.

“It’s part of a major investment in the UK economy, helping create 25,000 jobs and we will continue to work with industry as the changes are implemented.”

Source: Grocery Gazette