Net zero ‘grocery tax’ will push shopping bills up by £4bn, Tories warned

Green levies due to be imposed from next year will increase food prices within months, pushing up total shopping bills by up to £4 billion a year, retailers have warned, as senior Tories urged Rishi Sunak to drop the “nonsensical” plans.

In an open letter to The Telegraph, the British Retail Consortium suggests that a scheme to charge retailers and manufacturers for the cost of councils recycling their packaging will increase the cost of household goods when it is rolled out from April next year.

The levy was devised by Michael Gove during his time as environment secretary and billed as helping the UK to reduce waste and meet its net zero target, alongside a separate scheme to introduce a returnable deposit system for the purchase of drinks bottles and cans.

Taken together, the schemes could increase household shopping bills by up to £140 per year, based on the consortium’s estimate of an overall £4 billion cost.

Officials say the funds raised from retailers will go towards the operation and improvement of local council recycling services, with the fees acting as an incentive for firms to use less packaging.

But the Government’s official impact assessments of the two schemes – seen by The Telegraph – acknowledge that the entire cost due to fall on retailers could simply be passed on to consumers.  The scheme  – formally called the Extended Producer Responsibility  – would “most likely” increase household bills by £40 a year, or up to £48, according to an official assessment produced in February 2022, before soaring inflation that will have increased those figures even further.

The separate “deposit return scheme” for bottles and cans will add up to 4p to the cost of bottled drinks from next year, a separate impact assessment stated. It is intended to incentivise consumers to recycle containers, through a system of returnable cash deposits. The future of an equivalent scheme in Scotland is in doubt over the Westminster Government’s refusal to allow Holyrood to include glass bottles in the scheme.

The disclosures come after The Telegraph revealed that Downing Street was seeking an agreement with firms to cap the price of basic foods.

Lord Frost, the former minister, said: “It makes no sense at all to try to cap food prices on the one hand and implement a new tax on food on the other. In a cost of living crisis, what people absolutely do not need is for food prices to go up because we are putting more unnecessary costs on business with the spurious justification of net zero.”

Craig Mackinlay, who chairs the net zero scrutiny group of Conservative MPs, added: “If we want hard-pressed families to manage the cost of living crisis, this grocery tax needs to be abolished.”

No suggestion councils will reduce taxes

The Extended Producer Responsibility scheme effectively places a tax on manufacturers and supermarkets for the full net costs of collecting and disposing of packaging waste  – a cost that is currently borne by local authorities and funded by council tax. But there is no suggestion that councils will reduce taxes imposed on local residents when they begin benefiting from the funds.

Under the Government’s “central scenario” 85 per cent of the total cost of the Extended Producer Responsibility scheme will be passed on to shoppers via price increases – increasing to 100 percent in a “high” scenario – according to an official impact assessment, dated January 2021. The document puts the total annual cost at £1.7 billion, which retailers say has risen with inflation.

In the letter sent to The Telegraph, Helen Dickinson, chief executive of the British Retail Consortium, which represents major supermarkets, says: “Over the next year or so a raft of new regulations and taxes will burden retailers – and ultimately consumers – with higher costs. Just as inflation looks to be turning a corner, these new policies put this at peril. The Government needs to look at these in turn, and consider whether to implement, postpone or scrap each one.

“The Government’s Resources and Waste Strategy is a £4 billion a year headache for retailers and their customers. Made up of reform to Extended Producer Responsibility – a tax on packaging – and the introduction of a Deposit Return Scheme, this is an unambitious and ineffective strategy that will do little to improve our abysmal recycling rates.”

‘Voters will punish us harshly’

Jacob Rees-Mogg, the former business secretary, said: “On the one hand, the Government is trying to cap prices in shops, and on the other it is piling billions onto our food industry when their supply chains are already under strain. The British people will pay the price, with empty shelves in supermarkets and more expensive food. If this is our approach to net zero, our voters will punish us harshly.”

The British Retail Consortium claims that many councils do not yet have the recycling facilities needed to put the money to its intended use and says it should be ringfenced.

A spokesman for the environment and food department said: “As the Prime Minister has set out, growing the economy is an immediate priority for this Government.

“Supporting businesses to grow is a crucial part of this – which is why we want to ensure a simple and effective system for our Extended Producer Responsibility and Deposit Return schemes that benefits both businesses and consumers.

“We have been engaging closely with manufacturers, retailers, and packaging companies on the design of these schemes and on delivery plans. We will continue to work with these groups as we finalise plans to ensure that the schemes will deliver our environmental goals.”

The department believes that the deposit return scheme will result in the creation of up to 4,300 “green jobs”.