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Plastic Packaging Tax on Imports: HMRC Enforcement

Volume 738: debated on Tuesday 17 October 2023

I beg to move,

That this House has considered HMRC enforcement of plastic packaging tax on imports.

It is a pleasure to serve under your chairmanship, Ms McVey. I am grateful for the chance, however long it might be, to raise this issue.

The tax has been enforced for about 18 months. As a Parliament, we are not brilliantly effective at reviewing taxes after we have introduced them to check that they are working how we intended. This is one of those unique taxes where the Environment Secretary said last week that she was disappointed at how much the tax was raising—I am not sure that she had checked with the Treasury before she said it. I will talk about an area where we could perhaps raise a little bit more money.

There is real concern in the industry about illegal imports which claim to have a sufficient amount of recycled plastic content, when that is not the case—and there is very little enforcement to try to work out whether it is or not. It is hard to do because we cannot look at stretch film—I actually have some here with me—and work out how much recycled content is in it: there are no tests that can be done. We need robust processes to make sure that the claims people are making have some basis, and they are following the rules.

I asked for this debate because the industry had a meeting with His Majesty’s Revenue and Customs, and the latter said that enforcement was not its job—I am afraid that under the law, it clearly is. The idea that the job can be passed on to someone at the border who can check a pallet and see what is in the cling film will not work. It needs to be a process-driven situation. The law was clearly written, there is “joint and several liability” on both the importer who brings in the plastic film and claims that it has recycled content, and on the people who buy it from them and place it on the market. There is a whole of collection of ways we can enforce this on them. We can ensure that the big retailers and manufacturers, the ones that have robust supply chains, are doing the work they need to do before buying this stuff, so that they can be sure that they are not buying something that is undercutting the market.

Does my hon. Friend agree that, while the introduction of the plastic packaging tax was a really positive thing that ensured we got more use from recycled material, in this case, with no verification of products manufactured outside the UK, the grave danger is that we are doing a disservice to UK manufacturers?

That is the exact point that I am trying to make. We will not get more use of recycled content if we do not enforce the law and ensure that our domestic businesses are not undercut by the market. The fact is that plastic film that includes recycled content is 20% more expensive than using virgin polymer; that is why we need to have the plastic packaging tax. If we allow imports to enter which claim to contain that, and avoid the tax, clearly they can undercut the market for products that can be made here. That will mean that we cannot achieve the objectives that we want to achieve.

This is not a cheap industry to start up. If someone wants to mechanically recycle plastic so they can create 30% recycled plastic content, they need to have some very sophisticated machinery. It is a very difficult and intensive process, first to wash the plastic film, then shred it, and then turn it back into pellets, and the industry needs to invest millions and millions of pounds in the lines. This process happens in my constituency, and if the Minister wishes to come and see how it works, he is more than welcome.

We need enforcement to send the right signals out that it is safe to invest in this industry because there will be a market for the recycled pellet. Sadly, we have already seen at least one factory go bust because it could not find a market for its product, and others will be under threat.

We can be pretty sure that we have a problem because industry experts have assured me that there is no way that the film I have with me here, which is 12 micron film from India—film this thin, this strong and this stretchy—can be made with any recycled content. It is technically impossible with mechanical recycling to get the film either clear enough or strong enough to work like the film I have here does. If I tried to stretch film with recycled content, it would just tear. We can be absolutely sure that wherever the film I have is coming from, it is not complying with our plastic packaging tax.

I want to raise with the Minister, in the time we have, some questions about HMRC’s enforcement strategy, the work it has done so far, and how we can get the message to people buying this stuff that they are committing an offence, and that there is a risk that they will be caught, with significant financial and reputational penalties. All manner of businesses using this stuff on their products would be horrified to find out that it has no recycled content. They are trying to comply with the law and want to be seen to be helping the environment by using recycled plastic. If we can get that message out, there is a real chance to improve performance.

My hon. Friend is being generous with his time. If we know that shrink and wrap films are not using recycled content, why can it not be assumed that an imported product does not contain 30% recycled material? A piece of paper that is produced by an overseas manufacturer cannot possibly be evidence. Although it is unreasonable to expect HMRC inspectors to visit plants around the world, if we know that there cannot be recycled material in it, why can that not be the assumption?

I strongly agree that we could beef up the HMRC guidance. HMRC has published guidance on the due diligence checks that businesses buying this plastic film should make. It does require something stronger than just asking for a certificate.

My hon. Friend is right: if I were buying film from a reputable company in Germany that had all the accreditations under German and EU law, and had the annual inspections that we require in the UK to prove its process complied with the rules, we could be quite relaxed about that. That is fair competition and fair imports. Where we have a much greater issue is when we import from the Pacific rim without those standards and inspection in place. How could anyone be sure that the piece of paper represents anything? Even if it represented something when it was first granted, how can anyone be sure it has been complied with? That is especially when what is coming in cannot possibly comply and there is no way that could happen.

I request the Minister to provide guidance or a list of territories where there could be a lower risk approach, and those territories with a higher risk approach if buying film sourced from there, and assume that the plastic packaging tax applies. It would be quite straightforward to work out which countries have an equivalent standards and inspections regime to ours, and be a little softer on enforcement for those, and which countries do not have that, where there should be a high-risk approach.

It is effectively tax avoidance, bordering on tax evasion. Buying a product that undercuts the market price in the UK, which research shows cannot be technologically produced in a way that meets UK standards, and turning a blind eye thanks to a piece of paper, is not behaviour that we would accept anywhere in the tax code as competent due diligence and an attempt to comply with the tax. There is progress we could make there.

Sitting suspended for Divisions in the House.

On resuming—

[Philip Davies in the Chair]

It is a pleasure to serve under your chairmanship, Mr Davies; there has been a swift change of Chair in the last three and a half hours. I am grateful to everyone who has come back after the short interval for this crowd-pulling debate.

Before we disappeared, I was trying to convince the Government that, with a bit more work, they could raise extra tax, protect jobs in the UK and help achieve their environmental objectives. My case, which I hope is relatively uncontroversial, is that if we can find a bit more resource for enforcement, there will be significant potential advantages.

It is not that we do not know what we should try to do. HMRC published guidance for people involved in the supply chain of plastic packaging components containing 30% or more recycled plastic. They should be making checks, including

“checking that the price you pay for packaging components reflects the current market value—if components are offered at a lower market value, you should find out the reason for the low cost”.

That sounds quite reasonable. Checks also include

“getting copies of any certifications or audits that have been conducted on your suppliers, or the re-processors of recycled plastic”—

that is, looking for real evidence—and

“conducting physical inspections or audits on your packaging supply chain to prove information given by suppliers or customers”,

as well as

“checking details provided against other sources, such as supplier and customer websites”.

Those are all reasonable things that large companies buying these materials should have the resource to do. It would be helpful if the Minister could answer this, if he has the data from HMRC: in how many audits has HMRC found that people have been importing what they believe, or claim, to be recycled plastic, but are not paying the correct tax? How many of those audits have resulted in any kind of investigation or penalties being issued? How much are those penalties? How much extra tax has been collected?

The feeling across the sector is that there has been far more compliance enforcement against UK manufacturers —not unreasonably for a new tax—than there has been against the imports. However, it seems that the biggest risk to revenue leakage is from those imports. Perhaps the Minister could consider whether HMRC could do anything more to publicise the rules, and to really make it clear to the industry that the rules are there, that there are significant penalties, and that there are things that industry should be doing to protect its reputation and ensure that it complies. There is just a general lack of awareness. Given that there is a 20% cost saving available here, and given that times are quite tight, we can understand that people may get a bit tempted to not look too closely if we are not careful.

This is not a small problem. Roughly half of all stretch film that goes on the market in the UK is imported, either as rolls of film or on finished products. We are not talking about a small quantity. Think of the scale of the problem if we get enforcement wrong; there is a very large market out there that could end up avoiding tax in the UK. We really do not want that. I accept that it is early days for the tax—it has been around for only 18 months—and we must all learn how to comply with the processes, but hopefully there has been some use in having this debate to flag up something that seems to be going slightly awry. The issue is causing industry significant concern. If we cannot find a way of fixing this, it could cost us revenue and jobs, and securing the investment that we want in getting more plastic recycling will be very hard if business cannot see a viable market.

I suspect that the Government will want to increase the 30% requirement up to 40%. I think that the EU wants 70% by 2040, so I am sure that we will go in that direction. However, we can get there only if industry is prepared to invest, and we need to give it the confidence to do so. I hope that the Minister will be able to give the industry encouragement that it is worth investing in the sector.

It is a pleasure to see you in the Chair this evening, Mr Davies. I thank the hon. Member for Amber Valley (Nigel Mills) for securing and leading this important debate. The focus of all Members across the Chamber should be on ensuring that the implementation of the plastic packaging tax aligns with our shared goal of reducing the quantity of virgin, non-recycled plastic in use in the United Kingdom by guaranteeing that importers will face the same tax rates as domestic producers.

It is an undeniable fact that PPT is a valuable tool in encouraging firms into a transition away from virgin plastics; I think we are all agreed on that. However, data released by HMRC in August reveals a stark discrepancy. Yes, it is indeed early days for the tax, as the hon. Member for Amber Valley said; however, although it was estimated that 20,000 businesses across various sectors would be affected by the PPT, only 4,142 had actually registered to pay by 8 August 2023. That is one fifth of the total expected. That raises a vital question: what has gone wrong with the roll-out of this scheme? We look forward to the Minister informing us of that.

Industry leaders have expressed the concern that many of us feel that certain countries’ businesses are exempt from paying PPT. Of course, that is just one concern, but it is one that creates a risk of importers undercutting our domestically produced goods and undermining the competitiveness of our home-grown industries. We must ensure that PPT is levied fairly, and make sure that tax is paid on all imported products without exception. The UK Government must address these concerns and provide industry leaders with the assurances that they clearly seek.

Furthermore, PPT is failing to encourage firms effectively to reduce their plastic usage, primarily due to the gaps that we find in the regulations. Firms are using recycled plastics created through chemical recycling, which is a process that poses serious environmental and pollution challenges to the Government. We cannot afford to overlook the carbon-intensive nature of this process either. Plastics created through chemical recycling should not be exempt from taxation.

Although the threshold of 30% recycled material is a positive step, we believe that it is unambitious when compared to the European Commission’s approach, which levies a uniform 80 cents per kilogram for non-recycled plastic. Perhaps, to drive a substantial transition towards 100% recyclable materials, we should consider increasing the threshold. I look forward to hearing the Minister’s views about that.

We know that PPT raised £276 million in the financial year 2022-23. However, although that revenue is welcome, it is imperative that we reinvest it in increasing the supply of recycled packaging alternatives that are available to consumers. Of course, the tax is designed to provide an economic incentive for businesses to use recycled plastics and we must ensure that the revenue generated by it supports that primary goal. The lack of supply of packaging materials is hindering the transition away from virgin plastics, so we must reinvest in creating high-value jobs, increasing wealth and reducing the amount of plastic sent to incineration, or indeed landfill.

We cannot ignore the substantial concerns surrounding PPT and its effectiveness in achieving its intended purposes. We must address the issues with the scheme’s roll-out, ensure that there is fairness in taxation for imports, eliminate exemptions for chemical- recycled plastics and raise the threshold to encourage greater use of recycled materials. It is our collective responsibility to safeguard our environment and economy through smart and effective policies.

It is a pleasure to speak with you in the Chair, Mr Davies.

I congratulate the hon. Member for Amber Valley (Nigel Mills) on securing this debate on HMRC’s enforcement of the plastic packaging tax on imports. I am pleased to respond on behalf of the Opposition.

As Opposition Members made clear throughout the introduction and implementation of the plastic packaging tax, we support it as a tool to tackle plastic pollution. The tax was introduced in April last year to provide an economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging. By applying a tax on products that contain less than 30% of recycled plastic, the tax was expected to create greater demand for recycled plastic, which in turn would stimulate increased recycling and collection of plastic waste, diverting it from landfill or incineration.

Of course, today’s debate has focused on the enforcement of the tax on imported plastics by HMRC. I understand that in 2022-23, the first year in which the tax applied, 48% of the plastics declared as being subject to it were flagged as plastics imported into the UK, so I would be very interested to hear the Minister’s response to the points made by the hon. Member for Amber Valley about ensuring that the tax is applied correctly to imports and making sure that there is a level playing field for UK businesses.

More widely, as we make the transition to more sustainable plastics, we know that concerns have been expressed in the agricultural sector, among domestic manufacturers and in the wider business community about how they will adapt to the changing policy context. Indeed, I know that the hon. Member for Amber Valley has spoken before about his concerns about the way in which silage film was unexpectedly added to the list of items caught by the plastic packaging tax in guidance published in late 2021. He pointed out at the time that that meant that industries had not prepared for the change and that the cost would fall directly on farmers at a very difficult time for them. That point was also made by the National Farmers Union, which successfully secured a change of course by the Government, with HMRC concluding early in 2022 that silage film fell under an exemption from the tax.

Clearly, it would have been less disruptive if the Government had taken their ultimate position in the first place, rather than publishing guidance and then changing their mind. I would be grateful if the Minister could set out some detail about what the Treasury and HMRC have learned from the experience, and what they are doing more widely to work with the agricultural sector and businesses in the broader economy to assist with the transition to more sustainable plastics.

Furthermore, although it is important to tackle less sustainable packaging products from overseas, it is also important that we build resilience here in the UK and have a clear, stable policy environment to encourage investment in our country. I was therefore concerned to note that, in response to the Government’s recent announcement that they would consult on a new, mass-balance approach to chemical recycling, the British Plastics Federation noted that a

“lack of clarity to date has prevented companies from investing in the UK and some have looked elsewhere to build facilities.”

As the shadow Chancellor, my right hon. Friend the Member for Leeds West (Rachel Reeves), set out last week, we believe that Britain must rebuild its domestic resilience across the economy. We must make more here in Britain while developing robust supply chains so that we are less exposed to global shocks. A clear, stable policy environment is critical to encouraging companies to invest in productive capacity here in the UK, and it is therefore crucial in securing the jobs and economic resilience that such investment would bring, so I will be grateful if the Minister can explain what the Government are doing to support private investment in the production of sustainable plastics here in the UK.

It is a great pleasure to see you in the Chair, Mr Davies.

Let me congratulate my hon. Friend the Member for Amber Valley (Nigel Mills) on securing this debate on the plastic packaging tax. This world-leading environmental tax is designed to incentivise businesses to use more recycled plastic packaging in their production. As has been said, the manufacturers and importers of plastic packaging that does not contain at least 30% recycled plastic are liable for a new tax.

The plastic packaging tax is one of a series of measures to drive more collection and recycling of plastic waste, helping us to reach our ambitious target to eliminate all avoidable plastic waste by 2042. However, I recognise that some people make false claims about recycled content in packaging and do not pay the taxes they owe, and they not only undermine important environmental objectives, but create an unfair and uneven playing field for businesses that are trying to do the right thing. That was why we consulted extensively to get all aspects of the tax design right, including taxpayer obligations and the evidence required to back up claims of recycled content. It is also why, since the plastic packaging tax was introduced in April last year, HMRC has been actively helping businesses to understand their obligations, and developing a comprehensive enforcement and compliance response to identify and tackle any non-compliance.

As I have mentioned, the tax applies to plastic packaging that is either manufactured in or imported into the United Kingdom, including plastic packaging that is already filled at the time of importation. Following extensive consultation, the tax includes a de minimis threshold of 10 tonnes of packaging per year, which is intended to avoid placing a disproportionate administrative burden on businesses that would outweigh the environmental benefits. This means that many small importations of plastic packaging will be out of scope of the tax.

I want to address some points about evidence requirements. In designing the tax, it was important that we struck the right balance to ensure that claims were credible, while avoiding placing a disproportionate burden on businesses. Essentially, the challenge is that there is no scientific test to determine the recycled plastic content of packaging. For that reason, businesses are legally required to hold a body of evidence that shows the origin and content of recycled material, the details of manufacture or import of the individual plastic packaging components, and the proportion of recycled plastic in the outputs from the recycling process. As there is no one-size-fits-all approach, the type of evidence required is not prescribed—there is not one certificate. There can be a range of evidence, such as contracts, certificates and purchase orders.

Let me directly address some of the specific comments made by my hon. Friend the Member for Rugby (Mark Pawsey), who spoke about importers, as did the shadow Minister, the hon. Member for Ealing North (James Murray). We recognise that importers are a higher risk and must demonstrate the same standard of record keeping as UK manufacturers. Where businesses do not have or hold sufficient evidence for us to inspect, they must not declare that their packaging contains at least 30% recycled plastic, and they must pay PPT.

In addition, HMRC has a range of enforcement and inspection powers at its disposal, as well as sanctions and penalties, but the Government have also gone further by improving the legislative environment to introduce criminal offences for businesses that evade PPT. In a minute, I will come on to what action HMRC has already taken in that area, because several colleagues have asked for that information.

The Minister has acknowledged that, for reasons of safety, food contact applications cannot, by their very nature, include recycled material. I wonder whether he would accept that the plastic packaging tax should automatically apply to any imports of material used where food contact is involved.

To be clear, the presumption is that businesses need to demonstrate that they meet the threshold to have relief from the tax. If they cannot do that, they must pay the tax. That is clear, and I hope that that answers my hon. Friend’s question.

Businesses are also required to carry out due diligence on their supply chains and to demonstrate to HMRC what checks have been carried out in their supply chains. HMRC can and will challenge claims from businesses, and is doing so, and anyone in the supply chain can be held liable. When assessing that liability, HMRC will consider due diligence checks undertaken to ensure that the supply chain has taken appropriate steps.

My hon. Friends the Members for Rugby and for Amber Valley both talked about false and fraudulent claims. We are alive to that issue, particularly as it relates, as they pointed out, to the content of recycled plastic. We understand that that is a serious impact for businesses that are just trying to do the right thing, as I said at the beginning.

To embed the tax, HMRC delivered a wide-ranging communications programme that targeted both domestic manufacturers and importers of packaging. It focused on making them aware of the requirements and supporting them to comply with those. Recognising that some businesses may need more time to fully understand their obligations under the new tax, HMRC went even further and allowed a 12-month soft landing period, during which the focus was on education and support for businesses.

Now that that period has ended, businesses must ensure that they have gathered appropriate evidence, filed their returns and paid on time. Although HMRC continues to support businesses, it is now also focusing its efforts and targeting its resources on the areas of highest risk and non-compliance. The tax has been in place for 18 months, so HMRC now holds more data from tax returns to inform risk profiling and emerging trends. Its data-driven approach will help to identify and target instances of error and non-compliance. I will come on to what action has been taken in a second.

As with general taxation, HMRC’s compliance activity for PPT draws on a test and learn approach. That moves through various phases, and approaches can change depending on what HMRC learns along the way. Largely, it has concentrated on targeting unregistered businesses that may have a liability and on developing a better understanding of the plastic packaging tax population, particularly given the tax is so new, to build a risk compliance approach.

I want to address the question of registration. To reiterate, over 4,000 businesses have registered for the tax in 2022-23. We concede that that is lower than the initial estimate of 20,000, but that estimate was made before the final policy decisions on the tax were made. We were very clear that the estimate was always subject to a lot of uncertainty. HMRC continues to engage with businesses and hold them to account. I am pleased to say that, since the tax was launched, 250 additional businesses have now registered with HMRC.

Businesses found to be negligent or cheating the system will incur penalties in addition to the tax due and can face liabilities of up to 100% of the tax due. They can also face legal action to recover the tax; in the most serious cases, as I have said, criminal prosecution may take place. My hon. Friend the Member for Amber Valley asked for statistics on this. I can tell him that so far HMRC has contacted 2,000 businesses proactively and conducted 400 interventions on compliance since the tax went live. So far, £3 million has been recovered as a result of that action. I point out that HMRC will always be open to receiving any information or evidence where businesses or individuals feel that compliance is not in order.

I do not know whether the Minister knows this, but was the enforcement action against the importer or against somebody further up the supply chain?

I had anticipated the question, but was unable to obtain the information in time. If we have that information, I will be happy to follow up and write to my hon. Friend on the breakdown, because he is focused on importers and it is a reasonable question.

I will finally address the point on mass balance and chemical recycling. I should point out that we have launched a consultation on this matter. We are looking at it carefully and will respond to that soon, so watch this space on that point.

As in other areas of tax fraud, the Government are committed to taking strong action across the tax system to address any activity that is unfair and that undermines businesses that are doing the right thing. The plastic packaging tax revenues in the first year, as has already been said, were £276 million, which is broadly in line with the Office for Budget Responsibility’s forecasts. That indicates that the amount of plastic packaging subject to the tax is in line with expectations. However, as hon. Members will have heard, work to ensure that all obligated businesses are registered and compliant with the tax continues to this day. If a business or individual has specific concerns or, I reiterate, intelligence about tax non-compliance, I encourage them to report it to HMRC through the normal channels, so that we can ensure a level playing field for everyone. Everybody in this Chamber has expressed a desire to achieve that.

I have half an hour, Mr Davies, so I can wind up at great length. I thank everybody who has taken part in the debate. Hopefully, it has given us a chance to illuminate the issue and to give some profile to the importance of getting this right. I think we all, on all sides, want this tax to deliver its objectives; we all want to see more recycling of plastic packaging. There has to be a role for chemical recycling, because when it comes to anything that comes into contact with food, we cannot use recycled content through the manual route. That is a large percentage of the plastic packaging going on the market, so more progress will be needed in that direction.

I thank the Minister for the information he has given. I certainly hope that HMRC will be alert to this issue and try to ensure that the tax works as intended and achieves all the objectives that we want it to achieve.

Question put and agreed to.


That this House has considered HMRC enforcement of plastic packaging tax on imports.

Sitting adjourned.