66.The financial implications arising from the Waste Strategy are likely to be significant. The Government’s proposals are likely to lead to significant funding changes, including the implementation of a new Extended Producer Responsibility (EPR) scheme, a commitment to provide new burdens funding to provide additional services, the likely renegotiation of some existing long-term contracts, and the need for investment in new recycling infrastructure. Several witnesses raised concerns with us regarding the financial implications for local authorities and whether these had been adequately addressed.
67.The Government intends to introduce an Extended Producer Responsibility (EPR) scheme, a ‘polluter-pays’ policy which will require producers to bear greater responsibility for the costs of the disposal of their products. A levy would be placed on certain types of packaging, which would then be distributed back to councils, a process managed through a governance model yet to be determined. This approach was confirmed in the Government’s response to its consultation in July 2019, where it said it would seek to introduce the new producer responsibility system via an Environment Bill and would consult further on final proposals in 2020. A key principle of the EPR is that producers should cover the full net cost of managing their packaging once it has been used by the consumer:
Government intends to adopt full net cost recovery within a reformed packaging producer responsibility system to incentivise prevention, re-use, recycling and less littering of packaging waste. By adopting the ‘polluter pays’ principle, packaging producers should be responsible for the costs of collection, transport, sorting, treatment and disposal of packaging waste. Additionally, producers should be responsible for funding consumer communication campaigns and the clean-up costs of littered and fly-tipped packaging items.
The new EPR scheme would, therefore, transfer the estimated £820 million annual cost of managing packaging waste from councils to businesses, with local authorities paid—presumably indirectly, although this has not yet been made clear—by producers for collecting and managing the waste their products have brought into the system. In return, local authorities would be required to collect all recyclable packaging identified for collection through household collection services, which would be subject to consistent minimum collection standards. The Government said an EPR scheme would be a “powerful environmental policy approach” and a “crucial tool in moving waste up the hierarchy.”
68.The main principle of the scheme—that producers should pay more for the disposal of their packaging waste—had considerable support in the evidence. It was noted by several witnesses, including the ESA, that under the current producer responsibility system, which has been in place since 1997, producers only funded around 10 per cent of the costs of collecting and processing packaging from household waste, with local authorities funding the remaining 90 per cent. The Local Government Association told us they had “long called for businesses and manufacturers to pay the full cost of recycling or disposing of their packaging, and we are pleased the Government has listened to us.”
69.It had also been noted by several witnesses, including LARAC, that the EPR proposals would “fundamentally change” how elements of local authority waste services were funded. However, as highlighted by both Ministers, in many areas the Government has not yet announced the details of how the EPR scheme would operate in practice. There have, therefore, been calls for the Government to provide more detailed information in this respect.
70.Several organisations raised concerns about whether ‘full net cost recovery’ would be achieved in practice. We note that the Government’s consultation had provided a definition of ‘full net cost recovery’, while the then-Minister for the Environment indicated that it would include “the cost of collecting, managing, providing information and anti-littering, as well as with regard to the packaging waste [and] the collection and reporting of relevant packaging and waste management.” However, both the Somerset Waste Partnership and NAWDO told us that, at present, the methodology proposed within the consultation did not equate to full net cost recovery. The LWARB called for further clarification, recommending that the EPR should cover “elements of service which go beyond direct service delivery”, such as street cleansing, waste transfer stations, back office functions and vehicle maintenance.
71.We heard mixed views as to whether EPR funding should be ring-fenced. The ESA told us that it should, while Veolia expressed their view that it was “an important aspect to ensure is that the money flows [ … ] are not used for the purposes of other public services by local authorities.” This was supported by the then-Minister for the Environment, who told us that there was “a reasonable expectation of the people paying the EPR levy that that gets used for the purpose it is intended for”, although she explained that the Government had not yet decided whether a ring-fence should be introduced.
72.However, local authority representatives were less enthusiastic about ring-fencing. Philip Glanville, Mayor of Hackney, representing the LGA, told us there were “historical challenges around ring-fencing”, while Ian Fielding, from ADEPT, told us that “ring-fencing carries with it all sorts of connotations and difficulties.” They, along with Gurbaksh Badhan, from NAWDO, called instead for “transparency” in the system, on behalf of producers, local authorities and the Government.
73.We welcome the Government’s proposal to implement an Extended Producer Responsibility (EPR) scheme. It is right that producers bear a greater responsibility for the disposal of the materials they introduce into the system.
74.We were particularly keen to investigate whether an EPR scheme was likely to provide a reliable long-term source of funding for local authorities. Dr Gover, representing WRAP, argued that an EPR would be reliable. Indeed, Ian Fielding told us that producer responsibility funding might be more reliable than Government funding for local authorities.
75.However, the District Councils’ Network told us they had “concerns regarding the long-term viability” of an EPR. They noted that, were waste output to decrease over time and fewer materials funded by producers, local authorities would not see a reduction in the collection services required, yet there could be less money from the industry to sustain these services. This was a point made by several local authority representatives, including Philip Glanville, who warned that “the better we do, potentially, the less money that could be available”, and Cathy Cook from LWARB, who expressed her view that an EPR scheme could become “a victim of its own success”:
[ … ]in the long term, with the better quality of design, the increased recyclability of material that is being pushed through on the EPR and the influence of the circular economy, we feel that there will be more and more recyclate, which is a positive thing, so essentially there will be less and less funding coming in. It will almost be a victim of its own success in a way.
76.It is important that the EPR scheme provides a reliable, long-term source of funding for council services. There is a risk that the scheme could become a victim of its own success, with funding to councils reducing over time as producers improve the quality of the materials in their packaging.
77.We recommend, therefore, that the Government commits to undertaking a review of funding levels at least every two years, providing top-up funding to local authorities if this becomes necessary. The process by which EPR funding will be passed on to local authorities requires greater clarity, but must be transparent and fair.
78.It is important to reflect that, as the EPR scheme reduces the amount of recyclable waste in the system, the overall percentage rate of recycling may decline. There will, therefore, need to be innovation in the sector to ensure that even more materials are able to be recycled. Further, the Government should consider setting a single target for reuse and recycling so that improving reuse does not perversely count as a recycling failure.
79.In its Waste Strategy, consultations and written evidence, the Government has repeatedly stated its commitment to ensure that local authorities will receive additional resource to meet any new net costs arising from the new policies—such as free garden and weekly food waste collections—it has proposed. They have said that this includes both up front transition costs and ongoing operational costs. This was emphasised in public evidence to us by the then-Minister for Local Government, who noted his department’s role as “keeper of the new burdens doctrine”, and said:
Of course we fully recognise the pressure on local authorities in general. As [the the-Minister for the Environment] fully acknowledges, this is a new policy with new costs, and of course they will be fully resourced to meet all those new costs, both the upfront initial costs and the ongoing operational costs. That is a commitment that is enshrined in the Government’s new burden directive and this would follow the normal path of that process.
80.Despite the Government’s commitment, there remains deep scepticism from some organisations that sufficient funding will actually be provided. Philip Glanville said that the Government’s commitment was a “very important principle to set out [ … ] but the devil is in the detail.” Councillor Fleming, went even further, telling us:
We have zero confidence in the fact that the funding will follow the new function. This is borne out through history [ … ] it is quite clear that the Treasury has not even had a cursory glance at how much this strategy is going to cost. If it had, I very much doubt we would be sat around discussing it today [ … ] You will know that tying future Governments to ongoing funding for something is impossible.
81.In particular, concerns were raised regarding the reliability of the Government’s Impact Assessments. Philip Glanville told us that the LGA wanted “to go into much more detail with the Government” regarding the financial implications of the policies and their written evidence elaborated:
The financial implications of this reform for local authorities cannot be underestimated. However, based on the Strategy and the subsequent consultations published in February 2019, DEFRA has not been able to reassure the LGA that the financial implications for local authorities have been fully thought through.
Similarly, LWARB told us it was “unclear at the moment” what funding would cover and for how long, while NAWDO said they had found it “difficult to validate” the numbers in the Impact Assessments. Councillor Fleming made a similar observation, telling us that the District Councils’ Network did not know what had been included in the Impact Assessments, that local authorities had not been offered the opportunity to take part in their production, and that “frankly, they are not really worth the paper they are written on.”
82.Professor Gregson said that previous experience of Government cost projections led her to believe that these estimates were not reliable. When asked whether councils should be worried about the financial implications of the Strategy, Dr MacGregor expressed her view that they should:
Yes, they definitely should. The strategy [ … ] has a very high aspiration, but I do not see in the strategy a very clear sense of how it will be paid for.
83.Responding to these concerns, the then-Minister for Local Government told us that the Impact Assessments that had been published alongside the consultations were based on the best evidence available at the time of their publication and would be refined in due course. He said that, once the final policies had been agreed following the consultations, the Government would indeed be “actively involved with local government in bottoming out the costs in more detail.”
84.We also heard calls for fairness in the allocation of any new burdens funding. The Local Government Association told us they wanted the Government to ensure that any new burdens funding allocated for the collection of food waste should reflect the significant investment that had already been put into those services by some local authorities. It would be “intrinsically unfair”, they said, if that recognition was not recognised in the funding allocations.
85.While the then-Minister for the Environment acknowledged that many councils who felt they had been doing a good job thought they would be penalised, the then-Minister for Local Government told us that the New Burdens Doctrine said that new burdens should be funded and, “if someone happened to be undertaking it themselves before is neither here nor there, for the most part”.
86.While the Government has been clear that local authorities will receive additional resource to meet any new net costs arising from the policies it has proposed, including both up-front transition costs and ongoing operational costs, there is deep scepticism from local authorities that sufficient funding will be provided.
87.The Government should invite the Local Government Association and other council representatives to review the data that informed their funding estimates, publish these and commit to providing any additional funding that is deemed to be required.
88.At present, there are over 700 active waste collection and disposal contracts worth more than £1 million which have been placed by English local authorities. Professor Gregson told us that these contracts fell into broadly three categories: a large number of very short contracts, in the one to three-year range; a second category of eight- to 14-year contracts, largely for dry recyclables; and a third category of much longer contracts, often associated with the provision of infrastructure, typically between 25 and 30 years in length. We heard significant concerns that local authorities may need to renegotiate many of these existing contracts in order to meet the requirements within the Government’s Waste Strategy.
89.The Consultation on Consistency in Household and Business Recycling Collections in England indicated that changes, particularly with regard to consistency of recycling collections, should only be introduced when service contracts are reviewed, rather than mid-contract, to ensure sufficient lead time for industry and local authorities to plan and adapt their services, and for existing market barriers to have been addressed.
90.However, during our inquiry, several witnesses raised concerns about the potential costs arising from renegotiating existing contracts, where councils would not be able to meet existing contractual obligations or reach new recycling targets if they remain unchanged. While there was a particular focus on longer-term contracts, Gurbaksh Badhan from NAWDO noted that even some medium term contracts may require some renegotiation. Ian Fielding told us that the ability of local authorities to meet their contractual guarantees was “a particular issue of concern” to ADEPT:
We estimate that about 60 local authorities have some involvement in long-term contracts, as in 20-year or 25-year contracts, and most of those facilities, or probably all of them, will have been designed and built and are operating on an assumption of the feedstock they will receive, whether that is an energy-from-waste plant or a mechanical and biological treatment plant. The investment will have been made on the presumption of a feedstock of a particular character. Most of those contracts, which are standard-form contracts negotiated using standard-form Government-sponsored PFI or PPP-style contracts, will include a provision for a change in law or they will include a guaranteed minimum tonnage and/or they will include something around calorific value or waste composition. It is very likely—almost certain, I would suggest—that there will be some flow-back of the cost implications of that to the client.
91.Professor Gregson told us that, given the long duration of many contracts, councils could be locked into low performance levels for many years. She said it was clear that, if many English councils were to have any hope of raising their recycling rates to 50 per cent and above, they will need to renegotiate their existing contracts. This was supported by Jeremy Jacobs from the Renewable Energy Association, who told us that there will need to be some contractual changes if local authorities are going to meet the target of 65 per cent recycling by 2035.
92.There is already a distinctive geography to poor recycling rates in England, and so the extent to which contracts will require renegotiation is likely to differ across the country. The map below, provided by Professor Gregson, highlights a clear North-South divide. In the North-East region, seven out of 12 councils currently have recycling rates below 35 per cent and none are above 50 per cent. There is also, as might be expected, a clear difference between rural and urban areas:
Map: Recycling rates for English LAs (data: Defra, 2017/18)
93.Further, we heard that there could be a need to procure potentially-expensive short-term contracts to cover the period up to 2023, when the EPR scheme, mandatory food and garden waste collections and the DRS are scheduled to be introduced. Councillor Fleming told us this was “a massive part of the potential costs of the system”, which were currently unknown:
The majority of districts will be in contracts at the moment. Some of those will need to renew before that 2023 deadline [ … ] Do they go into a short contract up to 2023, not knowing what they will have to do post that? Will there be an increased cost in that? Yes, there will be. You will not know what the ongoing costs of that are. This is part of the problem with this whole thing: the costs are so unknown in terms of whether there will be a market there to go in for these new contracts.
94.Other witnesses sought to downplay the prospect of local authorities embarking upon multiple, mandatory contract renewals. Jacob Hayler, representing the ESA, told us that, for short term contracts, there would be sufficient lead-in time for those not to be a problem, while for medium-term, collection-based contracts, only 50 (or 15 per cent) were due to end after the 2023 implementation date. He accepted that in some of the longer-term contracts, often associated with expensive infrastructure, there may be aspects that would need to be renegotiated.
95.Waste management companies promised not to use multiple, mandatory contract renegotiations as an opportunity to give councils a bad deal. Martin Curtois, representing Veolia, told us that contract variations were not unusual and that, in a competitive market, his company would be incentivised to “optimise costs for all our clients” and develop relationships with local authorities in the long-term.
96.Several witnesses, including ADEPT, called on the Government to ensure that any costs arising from the need to renegotiate contracts, or to implement expensive short-term contracts, would be covered through the new burdens funding. However, the Ministers refused to commit that funding would be made available for that purpose, arguing that, were any renegotiations to be required, waste management companies should do so fairly:
I would take a very dim view of the waste management processors if they get in the way, in an unfair way, of a council trying to vary their contract in order to make sure that we make improvements to waste management [ … ] I do not want to get into some formula of exactly how we will manage individual situations. It is a case where the hands of central Government will try to do what is best for the taxpayer locally, and I would hope that the waste processors are going to do what is best for their business.
97.It is highly likely that some existing long-term contracts will need to be renegotiated if local authorities are going to implement the Government’s Waste Strategy proposals. The need to renegotiate existing contracts is one of the main unknown costs of the new system that the Government is proposing. Councils are also concerned that they might need to pay over-the-odds for short-term contracts up until 2023, in the period before the implementation of the EPR scheme and the new services they will need to provide.
98.Private sector contractors should commit to covering the cost of these contract amendments, but where this cannot be agreed, the Government should commit to cover, in full, any additional costs incurred by local authorities as a consequence of contract renegotiations arising from the Waste Strategy.
99.It is apparent that England has insufficient and inadequate recycling infrastructure. Earlier this year, The Times reported that millions of plastic pots, tubs and trays placed in recycling bins were being incinerated because of a lack of specialist facilities to process them. They estimated that more than half of the plastic waste put into recycling bins by householders were actually being sent to incinerators. Similarly, in June, The Telegraph sent undercover reporters to a recycling facility in south London, where they witnessed plastic bottles and paper being sent for incineration. This is, of course, even before the Government’s Waste Strategy seeks to increase the recycling rate in England from approximately 44 per cent now to 65 per cent in 2035.
100.When asked whether existing recycling infrastructure would be sufficient to meet the 65 per cent target, Jacob Hayler from the ESA told us there was “not a prayer”. He estimated that there would need to be £10 billion of investment in infrastructure to meet the Government’s target:
In order to meet those future targets, we think roughly £10 billion of capital investment will need to be made in infrastructure. That is a great opportunity: £10 billion of investment, 50,000 jobs. We think the new processing facilities will save around 7 million tonnes of CO2 equivalent per annum, and that is a great news story.
The then-Minister for the Environment told us that several of the main waste management companies had already written to the Government offering to put £10 billion of investment into place if they could get consistency in the policies put forward by the Government. However, when asked whether £10 billion sounded like a reasonable estimate, Gurbaksh Badhan from NAWDO said that the true figure would likely be higher:
I would say it is probably a bit light. It probably needs to go upwards [ … ] It probably needs to double, depending on what is going to be needed. Are we looking at regional facilities? Are we looking at a lot more smaller facilities? Where do you get the economies of scale within that infrastructure?
101.Jacob Hayler and Martin Curtois, representing Veolia, explained that new infrastructure would be paid for through private sector investment. However, Gurbaksh Badhan expressed her view that, ultimately, this would be paid for by others, including local authorities:
It is interesting, because ultimately, at some point, someone is paying, including the consumer, who will pay at some point, and producers. We suspect that if there is not fair funding in the formula, in terms of how that is worked out, there could be some cost backed into local authorities as well. At some point, as a society, we will all pay. It is just at different points.
102.Even today, the country’s recycling infrastructure is inadequate for our needs. So it is clear that there will need to be a very significant investment, potentially up to £20 billion, in new infrastructure to meet the Government’s recycling ambitions. While this will be paid for through private sector investment, ultimately costs will be passed on to producers, consumers and taxpayers.
103.The Government should work closely with the industry to ensure that England has the right recycling infrastructure in the right places, and that this is provided at a reasonable cost. The Government should also commit to covering any costs arising from the need for new infrastructure, which end up being passed on to local authorities through more expensive contracts.
106 , Department for Environment, Food & Rural Affairs, 23 July 2019, page 13
107 , Department for Environment, Food & Rural Affairs, 23 July 2019
108 , Department for Environment, Food & Rural Affairs, 18 February 2019, page 27
109 , Department for Environment, Food & Rural Affairs, 18 February 2019, pages 8–9
110 DEFRA (), para 17
111 Environmental Services Association (), para 7
112 Local Government Association (), para 2.2
113 Local Authority Recycling Advisory Committee (), para 6
114 (Dr Thérèse Coffey MP, former-Parliamentary Under-Secretary of State for the Environment, and Rishi Sunak MP, then-Minister for Local Government)
115 (Dr Thérèse Coffey MP, Parliamentary Under-Secretary of State for the Environment)
116 Somerset Waste Partnership (), para 7.1, and National Association of Waste Disposal Officers (), para 1.7
117 London Waste and Recycling Board ()
118 Environmental Services Association (), para 8, and Veolia ()
119 (Dr Thérèse Coffey MP, Parliamentary Under-Secretary of State for the Environment)
120 (Mayor Philip Glanville, Local Government Association) and (Ian Fielding, Association of Directors of Environment, Economy, Planning and Transport)
121 (Gurbaksh Badhan, National Association of Waste Disposal Officers)
122 (Dr Marcus Gover, WRAP)
123 (Ian Fielding, Association of Directors of Environment, Economy, Planning and Transport)
124 District Councils Network ()
125 (Cathy Cook, London Waste and Recycling Board) and (Mayor Philip Glanville, Local Government Association)
126 DEFRA (), para 7
127 / (Rishi Sunak MP, then-Minister for Local Government)
128 (Mayor Philip Glanville, Local Government Association)
129 (Councillor Peter Fleming, District Councils’ Network)
130 (Mayor Philip Glanville, Local Government Association) and Local Government Association (), para 2.3
131 London Waste and Recycling Board () and National Association of Waste Disposal Officers (), para 1.4
132 (Councillor Peter Fleming, District Councils’ Network)
133 (Professor Gregson, University of Durham)
134 (Dr Sherilyn MacGregor, Sustainable Consumption Institute, University of Manchester)
135 (Rishi Sunak MP, then-Minister for Local Government)
136 (Rishi Sunak MP, then-Minister for Local Government)
137 (Mayor Philip Glanville, Local Government Association)
138 (Dr Thérèse Coffey MP, former-Parliamentary Under-Secretary of State for the Environment, and Rishi Sunak MP, then-Minister for Local Government)
139 Professor Nicky Gregson, Department of Geography, Durham University (), para 3
140 (Professor Gregson, University of Durham)
141 , Department for Environment, Food & Rural Affairs, 18 February 2019, page 21
142 (Gurbaksh Badhan, National Association of Waste Disposal Officers)
143 (Ian Fielding, Association of Directors of Environment, Economy, Planning and Transport)
144 Professor Nicky Gregson, Department of Geography, Durham University (), para 8
145 (Jeremy Jacobs, Renewable Energy Association)
146 Professor Nicky Gregson, Durham University (), para 9
147 (Councillor Peter Fleming, District Councils’ Network)
148 (Jacob Hayler, Environmental Services Association)
149 / (Martin Curtois, Veolia)
150 For example, Association of Directors of Environment, Economy, Planning and Transport (), para 23, and (Ian Fielding, ADEPT)
151 (Dr Thérèse Coffey MP, former-Parliamentary Under-Secretary of State for the Environment)
152 , The Times, 19 May 2019
153 , The Telegraph, 26 June 2019
154 DEFRA (), para 16
155 (Jacob Hayler, Environmental Services Association)
156 (Jacob Hayler, Environmental Services Association)
157 (Dr Thérèse Coffey MP, former-Parliamentary Under-Secretary of State for the Environment)
158 (Gurbaksh Badhan, National Association of Waste Disposal Officers)
159 (Jacob Hayler, Environmental Services Association, and Martin Curtois, Veolia)
160 (Gurbaksh Badhan, National Association of Waste Disposal Officers)
Published: 5 September 2019