‘Grocery tax’ to add £56 to food bills

The upcoming “grocery tax” could hit hard-pressed Britons in the pocket, adding up to £56 annually to household shopping bills and costing families as much as £1.4 billion a year, state reports citing recent analysis.

The scheme, known as Extended Producer Responsibility (EPR), imposes a levy on retailers and manufacturers for the cost of collecting and disposing of packaging waste, currently funded via council tax.

The Department for Environment, Food and Rural Affairs (Defra) on Friday (20) published a series of “base fees” to indicate how much food manufacturers and retailers will be charged under the scheme when it starts next autumn.

The highest fee of £485 a tonne will be charged for plastic packaging followed by “fibre-based composite” at £455 a tonne. The levy for paper or board packaging is £215 a tonne while materials such as bamboo or hemp will be charged at £280 a tonne.

The government’s impact assessment estimates the policy will cost the industry £1.4 billion a year and will drive up prices by between £28 and £56 a year for the average household, adding 0.07 per cent to inflation as retailers pass on most of the costs to shoppers.

However, the British Retail Consortium believes the levy, officially known as the “extended producer responsibility”, will cost about £2 billion a year. If all of this were added to food bills it would drive up the average household cost by £70 a year.

The scheme is expected to come into effect shortly, coinciding with rise in employers’ national insurance contributions and the increase in the minimum wage.

The measure, intended to hit the Government’s net-zero targets, has drawn criticism for inflating food prices and creating new red tape for businesses. Critics warn the measure will increase food costs for families while creating additional bureaucracy for businesses.

In a letter sent to Chancellor Rachel Reeves last month, the bosses of Tesco, Sainsbury’s, Morrisons, Asda, Lidl and Aldi implored her to delay the levy.

The letter said: “For any retailer, large or small, it will not be possible to absorb such significant cost increases over such a short timescale.

"The effect will be to increase inflation, slow pay growth, cause shop closures, and reduce jobs, especially at the entry level. This will impact high streets and customers right across the country.

“We are already starting to take difficult decisions in our businesses and this will be true across the whole industry and our supply chain.”

The levy was originally conceived by Michael Gove during his time as environment secretary but, after a backlash from Tory MPs, it was put on hold.

Labour has revived the scheme since coming to power. Secondary legislation passed this month will bring the scheme into legal force on January 1, 2025, with charges due to be rolled out later that year.

Local authorities, which will receive the funds from the levy, are under no obligation to reduce council tax rates once relieved of the costs of waste collection.