We welcome the government’s efforts to reduce plastic packaging but a demand-led approach rather than a new and complicated supply-side tax might prove more effective
ICAEW Tax Faculty expressed this view in its response ICAEW REP 50/19 (available to download below) the plastic packaging tax consultation published by HM Treasury on 18 February 2019.
We support the government’s efforts to reduce the amount of plastic waste. As chartered accountants with a Royal Charter obligation to act in the public interest, we agree that it is right to question whether so much plastic should be produced and that greater efforts need to be made to move towards using alternatives to plastics and recycling as much plastic as possible.
We consider that over reliance on plastic and the problem of how to dispose of it is a global problem which ideally needs a global solution and in the absence of tangible action internationally, we support the government in exploring how this problem can best be addressed.
But is a tax really the best way to reduce plastic packaging?
We are not convinced that a complicated supply led tax such as that proposed in the consultation document is the right way forward. Our concern is that a tax which is difficult for businesses to comply with, and therefore leads to compliance costs, is likely to be most visible to the general public through higher prices in the shops. This does not help citizens to recognise the need to reduce plastic production and waste. It is not a demand led approach.
This is in contrast to the plastic bag tax which we believe has worked well owing to it being a simple and direct measure and able to be acted upon by the taxpayer on the spot, coupled with a clear campaign to win the hearts and minds of shoppers that the existing use of plastic packaging is unsustainable.
If there is to be a plastic packaging tax, then there needs to be a comprehensive business case made for its introduction that examines all aspects of the problem. We would recommend that, as part of building this case, government needs to publish data on what it will do, how much it will raise and, of paramount importance to those who will have to administer it (ie HMRC and businesses), a realistic assessment of how much the tax will cost to design, implement, and then collect.
As we know from comments by HMRC’s CEO to the Treasury and Public Accounts Committees in recent years, HMRC is facing unprecedented pressures on its resources and its capabilities due to the number of activities that it has on the go. We do question whether this is the right time to add yet another complicated tax to its existing functions, when all its efforts should be focussed on ensuring that its existing projects (eg MTD for VAT) are introduced successfully and its business as usual activities (eg PAYE in real time) run smoothly.
We believe also that any new tax needs to comply with our Ten Tenets for a Better Tax System, summarised in Appendix 1 of our response, by which we benchmark the tax system and changes to it. We would expect any new tax to meet the most relevant tenets which in this case are Tenets 2: that the application of the rules should be certain; 3: the rules should aim to be simple, understandable and clear in their objectives; and 4: a person’s tax liability should be easy to calculate and straightforward and cheap to collect.
We would also expect the rules to be constant once introduced (Tenet 6); subject to proper consultation with adequate time for both the drafting of tax legislation and full consultation on it (unlike the recently-introduced structures and buildings relief) (Tenet 7); regularly reviewed (Tenet 8); and framed so as to encourage investment, capital and trade in and with the UK (Tenet 10).
Demand-led solutions might prove more effective
The more that citizens – and businesses – can see the direct link between cause and effect, and are encouraged to do the right thing rather than punished for doing the wrong thing, the more effectively will behaviour be driven. Given the concerns that we have set out above on the likely complications of this tax and the real costs of implementation for HMRC, could the same effect be achieved more quickly and easily through a demand-led solution rather than a supply-led solution?
We believe that there is sufficient public concern and acceptance of this problem that a more radical solution than what looks like a complicated new tax is needed, with all the attendant design and implementation costs that it will incur. While a tax will certainly increase costs which will eventually change behaviour, could not more be done to encourage and reward those businesses whose products are plastic packaging free rather than to punish those whose products are not?
For example, if there is a greater proportion of plastic packaging used in the home delivery of products as compared to products sold through the high street, might the latter be encouraged, perhaps through a reduction in business rates and recognition for ‘plastic packaging free zones’ that encourage citizens to buy products there?
Another, more radical, solution might be to reduce the use of single-use plastic through an outright ban on its production, or perhaps to require that it comprises not less than, say, 80% recycled plastic. Such approaches could be coupled with a timetable for its elimination, perhaps over a period of time that allows the packaging industry to adapt to a non-plastic, environmentally friendly and sustainable future. This is effectively what is happening with diesel road vehicles where ultra-low emission zones discourage drivers from using such vehicles in those localities by making it prohibitively expensive to do so.
We would also suggest that, to demonstrate leadership from the top and that government is taking the problem seriously, bite-sized public information videos should be produced (like in the ‘sixties for seat belts and green cross code) to drive the message home about the damage that plastics are causing to our environment. These would reinforce the existing momentum and help to win over the hearts and minds of those still to be convinced. They could be shown on TV and circulated on social media.