Deposit Return Scheme - letter to MSPs: 9 February 2023

9 February 2023

To all MSPs,

Dear Colleague

Update on Scotland’s Deposit Return Scheme

With just over six months to go until Scotland’s Deposit Return Scheme (DRS) goes live in August, I wanted to write to you and provide an update and essential information that I hope you will find useful. The scheme administrator, Circularity Scotland Ltd (CSL) will also hold a briefing in Parliament for all MSPs, and details will be circulated in due course.

In December 2021, following feedback from industry, the launch date was extended by Parliament to August 2023 to give businesses more time to prepare. I have outlined below the progress which has been made since then and where additional support for businesses is available.

The scheme will be a major part of our efforts to cut emissions and build a more circular economy. It will reduce littering by a third and increase recycling rates of single-use drinks containers from the current rate of approximately 50% towards 90%.

Scheme administrator

Like similar schemes around the world, this is an industry-led scheme that is being delivered and funded by industry, led by the scheme administrator, Circularity Scotland. This approach had cross-party support when the Deposit Return Regulations were approved by Parliament in 2020.

Circularity Scotland was set up by industry in 2021 to deliver the scheme. It is a membership organisation, and its members include most of Scotland’s largest drinks producers, importers, wholesalers and retailers as well as trade organisations. Circularity Scotland is responsible for the costs of the scheme for developing and constructing the logistics network that will support the effective operation of the scheme. Notable progress made by Circularity Scotland includes:

• recruited an experienced team to deliver the Deposit Return Scheme and established a new office in Glasgow
• signed contracts with Reverse Logistics Group (RLG) for the scheme IT system and with Biffa for operations, logistics, and plastics reprocessing
• published details of the handling fees that will be paid to retailers operating a return point, specifications for reverse vending machines, and the fees that producers will pay towards the scheme
• secured a number of sites across Scotland to deliver the scheme, including a recently announced recycling site in Aberdeen, creating up to 60 jobs

Circularity Scotland is running a series of registration workshops across Scotland for businesses affected by DRS. I would encourage both producers and retailers to sign up to these workshops. There is also a dedicated customer support helpline if businesses need advice in relation to the scheme – 0141 401 0899 – and their website provides valuable and comprehensive information about the scheme.

Producers

In common with schemes in other countries, DRS is built around the principle of producer responsibility. That means that producers become responsible for the containers they put on to the market. This is in contrast to the current situation, in which responsibility and costs are placed on the consumer and local authorities.

Drinks producers must register with SEPA, charge a 20p deposit on each in scope single use drinks container they make available for sale in Scotland,​ and arrange collection of their empty scheme containers. Producers can fulfil these obligations directly or nominate CSL to fulfil them on their behalf.

Producer registration is now open. Producers can register via Circularity Scotland, or directly with SEPA. More information on how businesses can appoint Circularity Scotland to register with SEPA on their behalf can be found on their website. I would encourage any producer that is concerned about being able to meet their obligations to contact Circularity Scotland for advice and guidance.

In December, in response to feedback from producers, I wrote to the Net Zero, Energy and Transport committee, setting out further steps to make the scheme more efficient and reduce costs, while ensuring that environmental benefits are still delivered. This included a reduction in producer fees by Circularity Scotland by 8%, 30% and 40% than originally planned for glass, PET plastic and metal containers respectively.

Small producers

I understand that implementing DRS is a big change for small businesses to manage, which is why a range of measures have been put in place to support them. There will be no registration fee for producers with an annual turnover of £85,000 or lower. A producer will be charged for each individual container placed upon the Scottish market, so their charges will be proportionate to the size of the business meaning a small producer like a craft brewery will pay less than a larger producer. I will continue to listen to the concerns of small producers and will consider if there is any further action we can take to support them ahead of the scheme going live.

We want businesses to be ready for the scheme going live on 16 August. However, the Scottish Environment Protection Agency (SEPA) has agreed that, where there are clearly evidenced operational challenges, they will take a proportionate approach to compliance. They have committed to providing advice and guidance as the preferred route to achieving compliance for businesses who are striving to meet their obligations.

There have been a number of incorrect assumptions made about the scheme recently, so I would like to take this opportunity to clarify the following points.

Only the very largest producers (those making more than 10 million units per year) would be required to underwrite costs.

Circularity Scotland is strongly encouraging producers to adopt a scheme logo on their labels, to help consumers identify containers in scope, and to visually demonstrate to consumers the producers’ support for the scheme. But producers do not have to change their labelling for the Scottish market, and can continue to use existing barcodes if they choose to.

However, producers need to be aware of the risks of continuing to use existing barcodes, particularly those sold across the UK, which is why there is a payment for producers continuing to use an existing UK wide barcode for sales in Scotland.

Circularity Scotland have announced that day 1 payments for producers choosing to use their existing barcodes will be reduced by two thirds - from 2.4 months of fees to 3 weeks of fees. A day 1 payment is not required from producers introducing a new barcode.

Companies importing drinks into the UK that are intended to be marketed or sold in Scotland must register as a producer. We would only expect small producers based in other countries to register if they are marketing or selling directly without any intermediary UK business. In support of small producers and importers, Circularity Scotland is developing a stickering solution which will enable such producers/importers to add a barcode where none are currently used.

More information about producer obligations can be found at depositreturn.scot.

Retailers

Retailers will be the public face of the scheme, providing consumers with return points, which will be serviced by Circularity Scotland’s operation partners. Higher volume return points are likely to use Reverse Vending Machines and lower volume return points are likely to be manually operated.

We are working with industry to ensure a pragmatic approach to the implementation of DRS among retailers. In direct response to feedback, we published updated guidance in December to make it clearer, easier and quicker for retailers wishing to apply for an exemption from acting as a return point either for environmental health or proximity reasons.

We also announced proposals to bring forward amendments to the DRS regulations so that only the largest grocery retailers will initially be obliged to provide an online takeback service from 2025 onwards – all other businesses will be exempt. This will particularly help smaller retailers and producers, many of whom provide products direct to consumers via online sales. We are undertaking further work to identify how elderly and disabled people, who may not be able to get to a physical return point, will be protected during this phasing-in of online takeback.

This month, Circularity Scotland announced that the handling fee, which reimburses retailers for costs associated with operating a return point, has been increased by up to 19%.

More information about retailer obligations can be found at depositreturn.scot.

Hospitality

Hospitality businesses that only sell drinks for consumption on the premises do not need to charge a deposit to consumers, or operate as a return point. They will need to store scheme packaging, which will be collected by Circularity Scotland free of charge who will then refund the deposits the business has paid to the supplier or the producer. Hospitality venues will be able to register for collections from March.

Circularity Scotland is working with hospitality businesses to streamline solutions for the collection of glass and other operational questions.

Hospitality businesses that sell drinks for off-site consumption do need to charge the deposit and operate a return point, but may be eligible for an exemption from acting as a return point for environmental health or proximity reasons.

More information about hospitality obligations can be found at depositreturn.scot.

Local authorities

We are supporting local authorities to prepare for the introduction of the scheme.

While our business case demonstrates that there will be an overall net gain for most local authorities, with less waste to handle and reduced litter and associated clean-up costs, I know that significant work is required to adapt existing recycling systems and council services. Zero Waste Scotland is actively working to support local authorities through this transition to prepare for the introduction of the scheme.

The £70m Recycling Improvement Fund is also delivering one of the biggest investments in recycling in Scotland in a generation, and is supporting Scottish councils to modernise recycling services, align with the deposit return scheme, and make it easier for households to recycle and increase local recycling rates.

Internal Market Act

There has been some commentary recently that Scotland’s DRS would fall within scope of the UK Internal Market Act (2020), for which consent was withheld from the Scottish Parliament, but came into force regardless in January 2021.

The Deposit and Return Scheme for Scotland Regulations were approved by the Scottish Parliament in 2020 and are wholly within devolved competence.

The formal process for excluding the deposit return scheme regulations from the Internal Market Act is well underway. This is the same process we went through to protect Scotland’s ban on many single-use plastic products. I expect a decision from the UK Government as soon as possible given that this is what is needed to give industry absolute clarity.

VAT

I know how important it is for business to have clarity on the issue of how VAT will be applied to deposits. We are working closely with the UK Government to resolve this issue, and are seeking action to minimise risk to the Scottish scheme.

Last week the Deputy First Minister wrote to the Chancellor of the Exchequer to request that a decision be communicated as soon as possible, which we are now anticipating.

We will continue to work intensively with Circularity Scotland and industry to resolve any outstanding concerns ahead of the launch date. I remain committed to working closely with all partners including members across the Parliament to ensure this transformational scheme is a success and helps us achieve our net zero ambitions.

Kind regards

Lorna Slater