Retailers brace for new recycling scheme

Hi there, I’m Laura Onita, the FT’s retail correspondent, taking over the State of Britain newsletter this week. 

Let’s talk rubbish — literally. 

A new scheme to reform recycling

Every time you open a bag of crisps or buy a supermarket meal deal, you’re creating packaging waste. Until recently, the cost of dealing with that waste in the UK largely fell on local councils, not the companies that produce that plastic, glass or cardboard. 

But a levy kicking in from October, called Extended Producer Responsibility (EPR), is meant to change that. Large businesses will have to pay for the household packaging they produce and which consumers must dispose of, making it in effect a ‘polluter pays’ tax. The fees are calculated based on material type and weight, but future iterations will factor in recyclability, so companies using hard-to-recycle materials will pay more. 

This new set of laws was put forward by the previous Conservative government and it is an evolution of existing packaging laws. A planned implementation in 2024 has already been delayed once, much to the relief of retailers, who have been vocal about the cost of the scheme, while also arguing it was inadequately designed.  

The timing, however, couldn’t be more opportune. Although household waste generation in the UK has remained relatively stable in recent years, recycling rates have begun to stagnate. 

The national recycling rate from households fell from 44.6 per cent in 2021 to 44.1 per cent in 2022, according to official data. While packaging waste recycling improved to 64.8 per cent in 2023, overall household recycling progress has slowed — especially in England, where the rate dropped to 43.4 per cent, in contrast to higher rates in Wales (56.9 per cent) and Northern Ireland (49.2 per cent).

EPR should help align commercial incentives with environmental outcomes and be an effective lever to drive packaging redesign. 

Why retailers are kicking up a fuss 

Companies, particularly in food and drink, are mostly concerned about costs. The British Retail Consortium, which represents the industry, has estimated the levy could amount to £2bn this year. Upmarket chain Marks and Spencer is braced for an annual hit of £40mn from sustainability taxes, for example. 

“In many cases, we’re hearing that [the] bill runs into the millions of pounds for this first year, which is a significant amount off the bottom line,” said Sophie Tuson at law firm RPC. “They’re talking to their finance teams about how they budget for that and what the implications are.” 

Retailers say they are already reeling from an increase of as much as £5bn in costs stemming from changes unveiled last year by chancellor Rachel Reeves, including increases to employers’ national insurance contributions and higher wages from April. They have warned these cumulative costs will ultimately push up prices for consumers and lead to job losses. 

Another gripe has been that the revenue generated by the tax goes to local authorities but is not ringfenced specifically for recycling, albeit the Department for Environment Food and Rural Affairs has taken some steps to ensure that local authorities in England only receive funds that are spent on household packaging, waste management and recycling.

EPR shouldn’t be seen as a regulatory hassle

Despite retailers’ grievances, the legislation is a good example of where commercial and environmental incentives meet. 

When businesses face the true cost of their packaging choices, innovation around materials should follow, whether it’s lightweight alternatives, eliminating unnecessary layers or using more recyclable materials. 

In May, coffee chain Starbucks said it would roll out a new compostable takeaway cup and lid in Europe — designed and created in Wales with technology developed in Italy. This is a move away from plastic-lined coffee cups that can be difficult to recycle.

The shift to more recyclable packaging has a triple benefit, Tuson adds. “Brands can reduce their EPR fees, which is a great commercial upside; reduce the impact of their packaging on the environment; and then also get increased traction with consumers, because it’s a key issue they really care about.” 

For the UK economy, EPR represents an opportunity often perceived as a regulatory burden. Firstly, it levels the playing field. Currently, companies that invest in sustainable packaging are at a cost disadvantage compared to those using cheap, hard-to-recycle materials. EPR changes that dynamic entirely. 

Secondly, it creates new revenue streams meant to improve recycling infrastructure, support innovation in waste processing, and create some jobs along the way.

There is also a competitive advantage emerging. The European Union is in the process of harmonising its EPR schemes with consistent rules across all EU countries. The UK businesses that master EPR compliance now should be well-positioned to deal with it on the Continent, as many concepts from the UK’s EPR regime should be incorporated into it. 

Any implementation challenges are growing pains, not fundamental flaws. The alternative is economically inefficient and bad for the planet.

Britain in numbers

Boarded-up shops are a constant presence up and down the country. Yet I do believe that pronouncements about the death of the high street have been greatly exaggerated, and the latest data points to a much more nuanced story. 

Store closures in 2024 hit their second-lowest level in a decade, with 12,804 closures — the equivalent of 35 per day. More importantly, 9,002 new stores opened, averaging 25 daily. 

We are witnessing an evolution not an extinction and this is a reflection of how we live and shop. Convenience stores and coffee shops led the way with more than two net new openings a week. 

There were 171 net new convenience stores, as major supermarket chains focus on rolling out smaller format stores, while 105 new coffee shops opened in 2024, targeting commuters and out-of-town shoppers via drive-through outlets. Bank branches, however, are still closing, as services increasingly move online, and some fashion retailers are consolidating. 

Net closures have stabilised at 3,802 stores, and the overall net decline narrowed from 2.3 per cent in 2023 to 1.8 per cent in 2024. Even high streets themselves saw fewer net closures in 2024 compared with 2023, with decline rates falling from 3.3 per cent to 2.4 per cent.

The State of Britain is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.