Latte levy: Was the Chancellor right to reject a tax on disposable cups?

A major talking point of yesterday's Autumn Budget was the Chancellor's decision to rule out a latte levy on disposable cups. Here, edie investigates the extent to which such a proposal could have provided a much-needed boost to the UK's coffers and helped policymakers drive a resource-efficient economy.

In a speech virtually devoid of any mention of climate change or resource efficiency, Chancellor Hammond’s main reference of the green economy in yesterday’s (29 October) Budget statement was the assertion that the UK would “lead the world” in the global fight against plastic waste.

A new plastic packaging tax was proposed as a way of “transforming the economics of sustainable packaging”, and a timely pledge was made to reform the much-criticised Producer Responsibility scheme.

While these announcements were broadly met with praise from large sections of the green business community, there was decidely less clamour for Hammond’s rejection of the so-called latte levy, which could have placed a 25p tax on all disposable cups.

Hammond told fellow MPs at the House of Commons that after carefully considering a tax, the Treasury concluded that a specific charge would not be effective in changing consumer behaviour.

Some experts found the Chancellor’s rationale slightly odd, given the emphatic manner in which society has mobilised behind the plastics issue in recent times. Indeed, the enthusiasm with which the general public responded to a consultation on a tax measure was unprecedented, while a similar tax on plastic carrier bags has been nothing less than a major success.

“We’ve been here before with the plastic bag tax,” commented Jayne Harrold, PwC’s UK environmental tax leader, in the aftermath of the Budget. “There was constant pressure on retailers to deal with the problem voluntarily, but it was only when the tax was introduced that large scale reform was achieved, reducing our average use from 140 down to 19 plastic bags per year.”

Risk to the economy?

There is, however, evidence that backs up Hammond’s claim that consumers would not get behind such a scheme. Research conducted by the Paper Cup Alliance (PCA) earlier this year suggested that a latte levy would see just 5.7% of customers switch to a reusable cup, with a greater number (8%) simply choosing not to make a purchase at all.

This would have a devastating effect on retail and the wider economy, PCA warned at the time. The organisation went as far as to claim that a 25p levy on drinks served in disposable cups could end up costing the UK economy £819m and removing 11,000 jobs from the coffee retail sector.

“More can and should be done to increase paper cup recycling rates, but this needs to be balanced against the devastating impact that a 25p tax could have for thousands of people working in the British cup manufacturing industry, the towns they are based in, and the wider supply chain,” PCA spokesperson Mike Turner said. 

The research certainly makes compelling reading, but it does not appear to stack up with the results of initial trials in this area. For example, following the introduction of a 5p paper cup charge earlier this year, the number of Starbucks consumers using a reusable cup in stores located across London shot up by 156% in just six weeks. Of course, it will take a lot longer to understand whether such a project could deliver long-term benefits on a grand scale, but the signs are definitely encouraging.

With policymakers appearing to have closed the door firmly shut on a latte levy for the foreseable future, are there any other options on the table?

The Government’s response to a recent Environmental Audit Committee (EAC) inquiry on coffee cup packaging suggested that coffee shops should offer discounts for customers with reusable cups, instead of a levy on disposable cups. Chains such as Pret A Manger have reported successes in changing behaviours and reducing waste through the creation of discount schemes.

Infrastructure issues

Regardless of whether take a carrot or stick approach is taken, many believe these methods are minor solutions that fail to tackle a much wider problem around plastic recyclability. In the current market, takeaway paper coffee cups can only be recycled in select infrastructure, with just five paper cup recycling facilities in the UK.

The cups are commonly sealed with a plastic lining to make them waterproof. Although both materials are recyclable, the lining cannot be handled by most recycling facilities, while the paper is subjected to contamination issues. As a result, just one in 400 cups are recycled – less than 0.25% – with half a million littered each day.

Industry figures are now calling on the Government to improve recycling infrastructure to better accommodate for the 2.5 billion coffee cups that are thrown away annually.

“The jury is still out on whether the levy may have helped tackle the issues surrounding disposable coffee cups,” stressed Phil Wild, chief executive of British papermaker James Cropper.

“More needs to be done to build an effective infrastructure, not just for cups, but other waste materials, to facilitate effective recycling and keep recyclable materials in the value chain.”

Some claim that a latte levy would could in fact worsen the current recycling sitation. One such notable sceptic is Malcolm Waugh, chief executive of recyclable packaging manufacturer Frugalpac, who described yesterday’s announcement as “positive news” for his company’s industry.

“We know that a blanket levy would not have encouraged the widespread use of recyclable packaging and would have been counterproductive in the long term, leading to the importation of vast quantities of cheaper cups from China,” he said. “A levy would have made the problem worse.”

For Waugh, the emphasis should now be on ministers ensuring that coffee chains embrace the shift towards stocking recyclable cups and helping consumers to recycle more easily. Costa and Starbucks have both launched recycling schemes in all stores to ensure that as many as possible of their own takeaway cups – and those from competitors – are recycled.

The latest figures suggest that coffee cup recycling rates have risen from an estimated 1:400 to 1:25 in two years and are set to increase to 1:12 in 2019. The Government now has an opportunity to build on this success and find the best way to tackle the environmental impact of cups in its Resources and Waste Strategy, due for publication later this Autumn. 

George Ogleby

Comments (5)

  1. Mark Woodward says:

    I think the chancellor was wise not to tax paper cups, if in a years time recycling had dropped, and consumers were being taxed for no benefit it would be a political disaster, the industry is making progress 1:400 to 1:25 with further growth in the recycling of paper cups forecast, If it is not broken, do not try to fix it.

  2. Ian Byrne says:

    I disagree, and think he should have taken the opportunity to impose a tax while the political environment for doing so is benign. A small tax is a perfect "nudge" signal. Matching the announcement with support for cup recycling facilities in the UK (perhaps hypothecating 25% of the revenue raised), and introducing it at a lower level of, say, 10p, could still have sent a signal. Arguments that adding 25p to the price of a hot drink would lead to the loss of 11,000 jobs seem totally unsupported by evidence. I’m a cyclist, and it’s a bit of a pain to have to carry round a reusable coffee cup – but I have managed it.

  3. Mark Woodward says:

    IAN BYRNE I think you are mistaken if a tax was levied the industry would probably pass responsibility for paper cup collections to the government, withdrawing financial support, and that could result in a reduction in paper cup recycling, whereas at the moment the industry is forecasting further gains

    The latte levy could have gone the same way as landfill tax, straight into the chancellor’s pot, never to be seen again

  4. Gary Marshall says:

    Here’s the thing. Just back from London and a well known coffee shop. Virtually all buying, even to drink in store, took disposable cups, most were younger consumers. Wife and I had reusable crockery by choice. Yes we are old!!!! No concern from majority about price only about getting their coffee. Best response – crockery only and no take aways. By the way wife and I have a usable cup for when we need it so can cover this off as well. Time people got real about the real problem. Not price or a surcharge but a lack of care about recycling and the environment!!

  5. Grant Murdie says:

    Only my opinion, and of course I have no empirical evidence to back it up (neither it seems did Starbucks consider this possibility), but I would not be surprised if the 156% increase in re-usable cups resulting from Starbucks’ 5p charge on paper cups had more to do with people’s consciousness levels being raised and them thinking more about the harm their coffee cups do to the environment than the extra 5p they would spend. And no mention is made of the number of people who made the choice instead to sit in and drink their coffee in a comfy chair – as it should be drunk – rather than sporting the cup as a lifestyle accessory, parading down the street with the cup in one hand and mobile phone held to the ear with the other. Coffee should be enjoyed in a china cup (near infinitely re-usable).

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