EY Building a better working world Agenda ► Responding to the consultation ► ► ► ► ► Policy assessment Economic impact assessment ► ► Three elements Government rationale Mechanism proposed Findings Approaches to the policy proposal Page 2 16 April 2019 Plastic Packaging Tax Responding to the consultation Page 3 16 April 2019 Plastic Packaging Tax Producing your response: three elements ► A focused policy paper addressing the fundamentals of the Government’s policy model and proposing an alternative approach to achieving its goals ► An economic impact assessment of the Government’s proposal ► Detailed responses to the key consultation questions Page 4 16 April 2019 Plastic Packaging Tax Government rationale ► Overall objective is to tackle single-use plastic waste ► ► ► ► Wants “sustained use of more recycled plastic in production of plastic packaging to help tackle plastic waste” Needs intervention since: ► ► ► Plastic packaging accounts for 44% of plastic used but 67% of plastic waste ▬► focus on plastic packaging Using new plastic typically has greater environmental impact “Using recycled plastic is often more expensive” “Significant variations in price of new plastic” Tax is intended to ► Page 5 “provide clear economic incentive for businesses to use recycled material in the production of plastic packaging” 16 April 2019 Plastic Packaging Tax Mechanism proposed ► ► Tax on plastic packaging with <30% recycled content Charged on plastic packaging: ► ► ► Applied ► ► ► ► ► manufactured in the UK and unfilled packaging imported to the UK UK manufactured produce: made available for use or onward sale, Import: when released into the UK market Exports would not be taxed Flat rate per tonne of plastic packaging De minimis threshold for smaller operators Page 6 16 April 2019 Plastic Packaging Tax Policy assessment ► ► Aim: reduce single-use plastic waste Potential outcomes: ► ► Some suppliers will respond and use recycled plastic Many others just experience a price increase, due to: ► ► Lack of sufficient supply and ability of market to respond Inability to use recycled plastic ► ► ► Incentives may result in greater plastic waste ► ► Page 7 Physical requirements Regulatory requirements Changes to use recycled plastic may inhibit further recycling Incentive to pack abroad to avoid tax 16 April 2019 Plastic Packaging Tax Economic Impact Assessment Page 8 16 April 2019 Plastic Packaging Tax Provisional analysis shows the following economic impacts of the proposed tax ► ► ► 45% ► ► Fall in the size of the sector ► 15% Net increase in tax revenue (For a £500 per tonne tax) Page 9 ► ► The tax is likely to be regressive. Consumers in the bottom decile are likely to pay more for food and drink, and health and hygiene products compared to peers from the middle decile. These types of goods already account for a higher proportion of lower households’ expenditure. Sector output will fall due to switching to other plastics and materials. A tax set at £500 per tonne in 2022 could reduce Gross Value Added – the size of the sector that creates plastic packaging which contains less than 30% recycled content. A tax set at £500 per tonne in 2022 could reduce employment by 52%. Taxes paid by the sector (income tax, NICs, VAT, corporation tax, stamp duty, environment tax) will also decrease. Reduction in taxes paid could be outweighed by the revenue raised by the proposed packaging tax. Dependent on size of tax. The plastics packaging tax is likely to reduce the economic footprint of the sector Steps to estimate the impact of proposed plastic packaging tax: Step 1 Step 2 Step 3 Step 4 Page 10 ► Estimate economic contribution of the sector in 2017. ► Forecast economic profile of sector in 2022 with no tax. ► Forecast economic profile of sector in 2022 with tax. ► Difference in results from steps 3 and 4 show economic impact of tax on sector. In 2017 the UK plastics sector contributed the following to the UK economy Economic contribution: direct, indirect and induced £1,643m ► Relates to economic activity generating plastic packaging with under 30% recycled content and will be affected by the proposed tax. Also exclude exports (~17%) of output. ► BPF survey data: 75% of all plastic packaging produced in 2017 had under 30% recycled content. ► Apply 75% to 2017 ONS Annual Business Survey data and BPF survey data to estimate size of relevant sector. Total GVA contribution Source: ONS, BPF, EY 18,803 Jobs supported Source: ONS, BPF, EY £463m Total tax contribution Source: ONS, BPF, EY Page 11 Overall plastics packaging output will grow to 2022 but the part we focus on will decline ► Forecast 2022 whole plastic packaging sector to grow in line with trend historical growth (2017 – 2022: +59%). ► Even without tax there is an anticipated fall in the share of plastic packaging with less than 30% recycled content in 2022. (LHS chart) ► This will lead to a reduction in the size GVA, employment and tax paid by the sector producing packaging with less than 30% recycled content. (RHS table) 2,500 2,000 55% GVA (£m) 1,500 75% 1,000 500 25% 45% 2017 2022 no tax 0 Proportion more than 30% recycled material Proportion less than 30% recycled material Source: BPF surveys, ONS, EY analysis Page 12 The proposed plastics packaging tax will likely reduce the size of the sector in 2022 Substitution possible: Switching to higher recycled content plastics or other materials Proposed plastics packaging tax Converters supplying packaging for non-food & non-hygiene packer fillers: Avoid tax by switching materials Converters supplying packaging for food & hygiene products: Cannot switch packaging and pay tax. Reduced demand for plastics affecting raw material producers Higher prices passed onto packer fillers, retailers/wholesalers and ultimately consumers Some consumers buy less food & health products due to higher prices Page 13 Substitution not possible: Producers pass on cost of tax Consumers pay higher prices since ability to switch purchases in these categories is limited The proposed plastics packaging tax will likely reduce the size of the sector in 2022 Substitution not possible Substitution possible 82% of sector activity Proposed plastics packaging tax Tax paid on some packaging Page 14 18% of sector activity Tax paid on all packaging For each 1% increase in price due to tax, there is a 1% decrease in output No switching possible Reduced demand 100% pass through For plastic packaging with less than 30% recycled content Tax passed on in full to consumers, plastic packaging ~10% of product costs Some consumers buy less Consumers pay more For a 10% increase in prices, consumers reduce demand by 0.5% – 1% Ability to switch purchases in these categories is limited The proposed tax would further increase recycled content in plastic packaging in 2022 Share of packaging with less and more than 30% recycled content, assuming £500 per tonne tax 100% 90% 25% 80% 55% 70% 75% 60% 50% 40% 75% 30% 45% 20% 25% 10% 0% 2017 2022 no tax Proportion of packaging less than 30% recycled material Page 15 2022 tax Proportion of packaging more than 30% recycled material Approaches to the policy proposal Page 16 16 April 2019 Plastic Packaging Tax Three options ► ► Marshal more data/evidence to support the “do nothing approach” Seek to mitigate the worst impacts of the current proposal ► ► ► ► ► Longer timescales Different thresholds Exemptions Lower rates Seek to supplant the current proposal with an alternative proposal which can ► ► Page 17 Focus on the overall objective Ensure that incentive operates effectively 16 April 2019 Plastic Packaging Tax An alternative proposal ► The focus on recyclability ensures that there is an incentive to reduce waste. ► All plastic packaging can be brought within the tax, no need for exemptions e.g. for food contact ► In principle can be imposed on either producers or retailers Page 18 16 April 2019 Plastic Packaging Tax Next steps Page 19 16 April 2019 Plastic Packaging Tax Next steps ► Fully develop alternative proposal ► Produce policy paper ► Develop detailed response to consultation questions ► Meeting with HM Treasury on 8 May ► Submit consultation response on 12 May Page 20 16 April 2019 Plastic Packaging Tax EY Assurance Tax Transactions Advisory Ernst & Young LLP © 2018 Ernst & Young LLP. 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