A new analysis has starkly illustrated the way Labour’s proposed “grocery tax” could hit hard-pressed Britons in the pocket, adding up to £56 annually to household shopping bills and costing families as much as £1.4 billion a year.
The measure, intended to hit the Government’s net-zero targets, has drawn criticism for inflating food prices and creating new red tape for businesses while simultaneously offering much-needed relief for taxpayers.
The scheme, known as Extended Producer Responsibility (EPR), imposes a levy on retailers and manufacturers for the cost of collecting and disposing of packaging waste, currently funded via council tax.
Businesses will pay higher fees for using materials like plastic, charged at £485 per tonne, than for more recyclable options like paper, which costs £215 per tonne. But while the Government argues the policy will encourage greener practices, critics fear that these costs will ultimately be passed on to consumers.
Defra’s impact assessment, suggests EPR will push retail costs up by £1.4 billion in its first year, with households seeing bills rise by £28 in a low scenario, £48 in a central scenario, or as much as £56 in a high scenario.
The Government estimates that 85% to 100% of the levy’s costs will be passed on to shoppers. However, retailers believe even these figures underestimate the true costs, with the British Retail Consortium (BRC) claiming its impact on businesses could exceed £2 billion a year.
The policy – originally devised by Michael Gove but postponed as a result of an angry backlash from retailers and Conservative MPs – has now been brought back by Labour, reports the Telegraph.
Secondary legislation passed this month will bring the scheme into legal force on January 1, 2025, with charges due to be rolled out later that year.
Local authorities, which will receive the funds from the levy, are under no obligation to reduce council tax rates once relieved of the costs of waste collection.
Lord McKinlay, chair of the Net Zero Scrutiny Committee, blasted the levy as a “grocery tax” which adds unnecessary costs to consumers and burdens businesses.
He said: “It heaps more than a billion pounds of new and unnecessary costs on consumers”, adding that such measures exacerbate inflation and stifle growth.
The policy comes amid a surge in food prices, with inflation rising for the second consecutive month in the wake of Rachel Reeves’s Budget.
The Bank of England has already warned rising public spending and tax policies are putting extra pressure on household budgets and pushing up inflation over the next three years. Defra’s own analysis admits the policy will contribute to a 0.07% rise in inflation.
Industry leaders have also voiced doubts. Jim Bligh of the Food and Drink Federation argued the scheme could help build a “world-class recycling system” while warning it would come at significant cost to consumers.
Likewise Andrew Opie of the BRC said that while the policy could play an important role in reducing unnecessary packaging, needed to deliver tangible environmental benefits to justify its £2 billion price tag.
Lord Frost, the UK’s former Brexit negotiator, has accused Labour of imposing excessive green regulations that hurt families and businesses.
He said: “Keir Starmer’s government doesn’t care about the cost to ordinary people,” suggesting the tax is an illustration of Labour’s prioritisation of green politics over economic growth.”
A spokesperson for the TaxPayers’ Alliance said: “Taxpayers are tired of footing the bill for ill-conceived policies especially when the Government’s promises of environmental and economic benefits remain unproven.”
A Defra spokesperson said: “This government will end our throwaway society and stop the avalanche of rubbish that is filling up our streets by increasing recycling rates, reducing waste and cracking down on waste crime.
“Extended producer responsibility for packaging is a vital first step for our packaging reforms which will create 21,000 jobs and stimulate more than £10 billion investment in the recycling sector over the next decade.
“We continue to work closely with businesses, including the glass industry, on these reforms. We set out illustrative fees which are lower for almost all categories than originally proposed, including for glass.”
