Another Tax Raid on Packaging Won't Cut Plastic, It'll Just Cut Growth
Rachel Reeves is reportedly planning a significant increase to the UK's plastic packaging tax in next week's budget. If true, this would mark the second major packaging levy to hit businesses in as many months, following October's £1.4bn extended producer responsibility (EPR) invoices. The Chancellor appears to have identified packaging as a popular ATM for plugging budget gaps, but this approach threatens to deliver maximum economic pain for minimal environmental gain.
Nobody disputes the need to tackle plastic waste. The outrage following Blue Planet was justified, and industry has responded with substantial investment in recycling infrastructure, packaging redesign, and sustainable alternatives. However, for organisations navigating regulation PR, the challenge is that piling on tax increases without addressing fundamental market failures doesn't reduce plastic—it simply makes UK businesses less competitive.
The current plastic packaging tax already charges £223.69 per tonne on packaging containing less than 30% recycled content. Reports suggest Reeves may increase both the rate and the recycled content threshold. Yet even the government's own stakeholders acknowledge the tax has been "widely seen as a failure in its mission to go to war on single-use plastic." The reason is simple: there isn't enough food-grade recycled plastic available in the UK to meet demand, and what exists is expensive. So companies either pay the tax or import cheap virgin plastic from overseas, where enforcement is lax to non-existent.
This creates a perverse outcome. UK manufacturers, already struggling with EPR costs, face higher taxes for using the only plastic they can source at competitive prices. Meanwhile, foreign competitors ship finished goods into the UK with impunity, undercutting domestic producers whilst contributing nothing to solving the plastic problem. The tax becomes a levy on UK manufacturing, not on plastic itself.
At SPQR Agency, we see this as a critical failure in regulation narrative management. The Treasury appears to view the food and retail sectors as convenient revenue sources rather than economic engines.
The timing could hardly be worse. EPR invoices only began landing last month, representing a fundamental restructuring of how packaging costs are calculated and allocated. Businesses are still absorbing these increases and building them into their pricing models. Adding a second major packaging tax hike before companies have even adjusted to the first suggests the Treasury views the food and retail sectors as convenient revenue sources rather than economic engines that need stability to invest and grow.
The British Retail Consortium is right to call this what it is: double taxation. EPR charges companies for the full lifecycle cost of their packaging. The plastic packaging tax penalises them again for the same material. The BRC proposes rolling PPT into EPR with legal ringfencing to ensure revenues fund recycling infrastructure. This makes eminent sense if the goal is genuinely environmental rather than simply fiscal.
But here's the deeper problem: these taxes don't exist in isolation. They arrive alongside employer National Insurance increases, business rates pressures, and mounting wage bills. Each individual measure may seem modest to Treasury officials, but they compound into an aggregate burden which ultimately threatens business viability, particularly for smaller manufacturers operating on thin margins. This is of public relevance because these costs don't disappear, they flow through to consumers as higher prices or back to workers as constrained wage growth and reduced employment.
The food industry is already warning of severe inflationary pressure. Adding further packaging costs now means either reduced investment in sustainability (the opposite of the policy's intent), or higher shelf prices at precisely the moment households are struggling with cost-of-living pressures. The irony is rich: a government elected partly on promises to ease family budgets may end up making weekly shops more expensive through environmental taxes that don't actually improve environmental outcomes.
If Reeves is serious about tackling single-use plastic rather than simply raising revenue, she needs to focus on supply-side reform. That means attracting investment in chemical recycling facilities, streamlining planning permissions for recycling infrastructure, and giving HMRC proper enforcement powers to stop cheap virgin plastic imports that undermine the entire system. Without these measures, hiking the tax merely punishes British businesses for a market failure the government has failed to fix.
Philippe von Stauffenberg of Greenback Recycling Technologies puts it plainly: hiking the tax without investing the proceeds in creating "a better plastic economy" simply makes the system more expensive without making it more effective. He's right. The current approach gives us the worst of both worlds: economic damage without environmental benefit.
The upcoming budget will reveal whether this government understands the difference between environmental policy and revenue raising. Businesses have shown willingness to invest in genuine solutions when market conditions support them. What they cannot sustain is being treated as a fiscal convenience, where they’re taxed twice for the same problem, undercut by unregulated imports, and denied the infrastructure investment needed to actually achieve the stated environmental goals.
If next week brings another packaging tax raid without supply-side reform, it will confirm that the Treasury has learned nothing from the plastic packaging tax's acknowledged failures. It will also signal to businesses in every sector that when this government needs money, stakeholder concerns about competitiveness, inflation, and policy coherence rank well below short-term fiscal expedience. That's not environmental leadership. It's just lazy economics.
