Drink manufacturers and retailers have come together to criticise the UK government’s decision to apply VAT to the deposit return scheme (DRS).
It has been revealed that VAT would be applied to the deposit collected as part of DRS for Scotland, Wales, England and Northern Ireland.
In a letter addressed to Lucy Frazer the financial secretary to the treasury and environment minister, the collective Trade Associations representing the UK’s drinks producers and retailers questioned the decision, stating: “By applying VAT to deposits, the government is diverting essential investment in the scheme whilst imposing unnecessary high costs on producers and retailers who partake, risking its operational success.”
The letter highlights the belief that if a VAT is applied, “the government contradicts the schemes’ stated aims’ leading to a number of risks.”
Potential risks outlined in the letter
- A stark rise in cost to producers and retailers which will inadvertently lead to a rise in the price of products to recuperate funding lost via unredeemed deposits
- Penalising consumers for recycling through a scheme created by government to encourage recycling
- Undermining the financing model of the DRS, resulting in higher costs on industry and other parts of the supply chain in updating systems and managing cash flow
If VAT is applied to the deposit fee, an estimated £185m could be lost through unredeemed deposits in the first year of the scheme being launched, leading to the risk of higher prices for consumers.
British Soft Drinks Association, director general, Gavin Partington added that applying VAT to deposit collected creates, “risks of jeopardising the success of a landmark environmental policy.
“This makes zero sense and needs to change. We are calling on the UK Government to reverse its decision to apply VAT to the deposit fee while there’s still time.”
The letter to UK government has been signed by the BSDA, Food and Drink Federation, Association of Convenience Stores, British Retail Consortium, Natural Source Waters Association and British Beer & Pub Association.