Deposit Return Scheme Implementation Advisory Group minutes: May 2019

Attendees and apologies

Attendees

• Jill Farrell, Zero Waste Scotland (Chair)
• Don McGillivray, Scottish Government (Co-chair)
• Andy Tighe, Scottish Beer and Pub Association
• Gavin Partington, British Soft Drinks Association
• Raymond Gianotten, British Soft Drinks Association
• Bryan McCluskey, Natural Hydration Council
• Adrian Roper, NFRN
• Shahid (Mo) Razzaq, NFRN
• John Lee, Scottish Grocers Federation
• Pete Cheema, Scottish Grocers Federation
• Ewan MacDonald-Russell, Scottish Retail Consortium
• Dagmar Droogsma, Scotch Whisky Association
• Alex Jones, Scotch Whisky Association
• Colin Smith, Scottish Wholesale Association
• Margaret Smith, Scottish Wholesale Association
• Colin Wilkinson, Scottish Licensed Trade Association
• William Macleod, UK Hospitality
• David Barnes, Zero Waste Scotland
• Don McCalman, Zero Waste Scotland
• George Burgess, Scottish Government
• Ginny Gardner, Scottish Government
• Scott Wood, Scottish Government
• Tim Chant, Scottish Government
• Alana Tyrell, Scottish Government (Secretariat)

Apologies

• Laura McKelvie, Federation of Small Business

Items and actions

Agenda item 1: Welcome and apologies

1. Don McGillivray welcomed everyone to the second Implementation Advisory Group (IAG). Mr McGillivray welcomed two new attendees, Ginny Gardner (Scottish Government Circular Economy Unit) and George Burgess (Scottish Government Food and Drink Division). Apologies were received from Laura McKelvie (Federation of Small Businesses). 

Agenda item 2: Minutes from the previous meeting

2. Don McGillivray reviewed the minutes from the previous meeting. John Lee requested an update on an action from the previous meeting concerning the implication of DRS on non-domestic rates paid by those businesses acting as return points. Scott Wood confirmed that discussions were underway within the Scottish Government on this issue. Don McGillivray requested that a more substantive update be provided at the next meeting, including the setting of a timetable for resolution of the issue. The previous minutes were then agreed upon.

Action: Scottish Government to update the IAG on progress of discussions regarding the impact of DRS on non-domestic rates at its next meeting.

Agenda item 3: Scheme announcement

3. Don McGillivray offered a brief overview of the scheme design announced by the Cabinet Secretary for Environment, Climate Change and Land Reform through a parliamentary statement on 8 May. The announcement clarified the Government’s position concerning the materials to be included in the scheme, the deposit level to be charged, the configuration of return points and the ownership model. On 23 May a stakeholder event would be held, providing partners with an opportunity to engage directly with the Cabinet Secretary on the scheme design.

4. Don McGillivray confirmed that attention would now turn towards the preparation of the legislation to establish the scheme, with regulations due to be brought before parliament in late summer. The super-affirmative parliamentary process would offer an opportunity for stakeholders to express their views on the scheme design prior to parliament formally scrutinising the legislation. 

5. Jill Farrell acknowledged the initial response of stakeholders to the scheme announcement and, in particular, their ongoing concerns regarding: the inclusion of glass; the impact on retailers; and the complications associated with a Scotland first or Scotland only DRS. Zero Waste Scotland (ZWS) would continue to engage with all partners in order to address those concerns. 

6. Gavin Partington highlighted the written representations which had been made by the Implementation Advisory Group on each of the above issues prior to the meeting. He emphasised the need for flexibility in relation to the implementation timetable and noted the critical role of the Scheme Administrator (SA) in implementing the scheme. Gavin also highlighted some concerns around the producer fee estimates contained in the Full Business Case (FBC) and noted the significant variance in producer fees by material that would be required as a result of the decision to include glass. Scott Wood agreed to explore whether any modelling of producer fees by material type could be shared with the group.

7. Whilst it was widely accepted that the inclusion of glass would increase cost and complexity within the scheme, Don McGillivray pointed towards the significant benefits that would flow from this decision, many of which were set out through the FBC. He also directed the group to a piece of detailed analysis concerning the inclusion of glass which had recently been released by the Scottish Government following a Freedom of Information request. He explained that the document showed how the DRS Programme Board came to their decision regarding the inclusion of this material in the scheme. 

8. Ewan MacDonald-Russell highlighted the need for significant further work to be undertaken before a final view on timescales for implementation could reasonably be reached. Don McGillivray agreed with this point and acknowledged that industry was likely to be cautious of committing resources towards the scheme until after the conclusion of the parliamentary process.

9. Pete Cheema expressed concerns surrounding the application of VAT in respect of deposits, noting the significant impact this could have on the operating costs for the scheme. Don McGillivray confirmed the Scottish Government’s position that the deposit should not attract VAT and confirmed that a case would be made to HMRC on this basis. Nevertheless, it was recognised that the decision on the applicability of VAT was ultimately one for the UK Government.

10. Pete Cheema voiced concerns relating to the underestimation of the number of containers sold in Scotland and expressed reservations that the scheme may undermine the Scottish economy, placing it at a competitive disadvantage to the rest of the UK. Mr Cheema also questioned the handling fee estimates contained in the FBC, indicating they fell well short of the likely costs to be incurred by those retailers acting as return points.  Don McGillivray explained that the handling fees listed in the FBC were similar to those in other countries and that ultimately the setting of the handling fee would be a commercial negotiation between producers and retailers, facilitated through the SA.

11. Margaret Smith expressed concerns about the increased warehousing and distribution costs falling to wholesalers as a result of a Scotland only or Scotland first scheme. This increased cost base could lead to difficult commercial decisions, potentially resulting in job losses and a reduction in consumer choice. Don McGillivray noted the work that was planned through the IAG to better understand and mitigate those issues. 

12. Shahid (Mo) Razzaq expressed concerns about the higher cost of RVMs which accept glass, and the potential for the inclusion of this material to result in a higher level of fraud in the scheme, particularly if glass bottles are to be captured whole. 

Action: Scottish Government to explore whether any modelling of producer fees by material type could be shared with the group.

Agenda item 4: High level implementation plan and approach

13. Jill Farrell presented the high level Plan on a Page (POAP) that had been developed for the implementation of the scheme. The POAP recognised the Scottish Government’s ambition to have the scheme operational in 2020/21 and also took account of the critical role that legislation would play in directing implementation activity. 

14. Jill explained that the goal was to have the SA in place by Quarter 4 of the 2019/20 financial year. Gavin Partington questioned whether the regulations to establish the scheme would designate a SA or simply allow for one to be appointed by producers and retailers. Don McGillivray confirmed that this was under active consideration and that the Scottish Government would outline its thinking as soon as possible. The group recognised the need to prioritise the establishment of a SA and that further work was required to agree its corporate structure and board membership. In particular, there was an outstanding question about whether trade bodies or individual businesses should make up the Board. It was noted that an approach which relied on trade bodies to offer sector representation on the Board would closely resemble Norway’s DRS model.

15. Pete Cheema expressed concerns about the liabilities that would be assumed by those bodies overseeing the operation of the SA. He highlighted the exposure to financial risk that would come with a body’s involvement and sought assurances that any liabilities would be underwritten by Government. Don McGillivray noted that, as a form of producer responsibility, ultimate responsibility for the financing of the scheme should sit with industry. However, further discussion on the management of liabilities was likely to be a feature of group discussions going forward.

Agenda items 5 and 6: Priority work packages and other work packages

16. Donald McCalman presented on the range of work packages that would be taken forward by the Group. It was noted that an additional workstream would be established to look at the impact of DRS on retail settings and that this would be prioritised alongside those packages focussing on: (i) scheme administrator; (ii) logistics; (iii) producer/distributor; (iv) data/ICT; (v) financing.

17. Individual POAPs had been prepared for each work package and would form the basis for activity going forward. Ultimately, the outputs of each package would inform the target operating model to be implemented by the SA. That target operating model would be reflected in a FBC Stage 2 to be developed by ZWS in partnership with IAG members and their member businesses. David Barnes noted that the FBC Stage 2 would also explore how the scheme could best deliver wider societal benefits to Scotland, including through maximising employment opportunities and facilitating charitable giving by the public.

Agenda item 7: Establishing implementation advisory groups (IAG) and working groups

18. Donald McCalman outlined the intention to establish three working groups to explore: (i) the establishment of the scheme administrator; (ii) the impact of DRS on production and distribution arrangements and (iii) the operation of DRS in retail settings. The group were supportive of this step and a number of members including the Scottish Beer and Pub Association, British Soft Drinks Association, Scottish Wholesale Association, Natural Hydration Council, Scottish Grocers Federation and Scottish Retail Consortium indicated a willingness to support those groups.

19. It was agreed that ZWS would engage further with members following the meeting to identify participants for the working groups and that the intention should be for each group to have met prior to the next full meeting of the IAG. In addition, ZWS highlighted the need to access specific expertise in areas including finance, logistics and data/ICT to inform the development of those workstreams. IAG members agreed to consider opportunities for accessing such expertise through their membership and noted the potential availability of financial support to facilitate this.

Agenda item 8: Future meeting schedule, including dates of next meeting

20. The group agreed that future meetings should take placed every 4 – 6 weeks. It was agreed that another meeting would be held before the Scottish Parliament’s recess at the end of June, at which point the group could consider feedback from early meetings of the working groups. 

Agenda item 9: AOB

21. Ewan MacDonald-Russell asked that further consideration be given to the participation of online marketplaces in the scheme, noting the logistical challenges they would encounter if they were obligated to offer a take-back service. Don McGillivray noted the policy intention that online retailers be required to accept returns but acknowledged the challenges faced by online marketplaces and confirmed the Scottish Government would consider this further.

Action: Scottish Government to consider the treatment of online marketplaces for the purposes of DRS.

Scottish Government
June 2019