Packaging - extended producer responsibility: full business and regulatory impact assessment (BRIA)

6.0 Consumer Assessment

117. It is important to consider the impact on consumers of affected packaging products. The Scottish Government definition of a consumer is "anyone who buys goods or digital content or uses goods or services either in the private or public sector, now or in the future".

118. The Scottish Government Consumer and Competition Policy Unit specifies the questions below when determining the impact of proposed legislation on consumers. The assessment results are detailed below (see Table 3).

Table 3. Consumer Assessment Questions.

Does the policy affect the quality, availability or price of any goods or services in a market?

The reformed packaging EPR system will not directly affect consumers as its aim is to recover the full net costs of the collection, recycling and management of household packaging waste from packaging producers.

Under packaging EPR, packaging producers will take on the costs of collecting and disposing of packaging waste from households. This is a cost transfer for local authorities who currently pay for these services. It is possible that producers will pass these costs onto their consumers in the form of higher prices. In the previous IA, these potential price impacts on consumers were recognised as a key cost of packaging EPR but were not quantified. Defra have subsequently undertaken research on how businesses are likely to react to the reforms and have quantified likely price changes for consumers.

Although some packaging producers will be exempt from packaging EPR due to the de minimis threshold, it is assumed that the majority of packaging producers will be liable. Hence the fees will largely represent an industry-wide cost increase with all firms facing an increase in cost.

To calculate the exact cost pass through rate (CPT), defined as the amount of the cost increase that is passed onto consumers via increased prices, we would need to make use of measures of the elasticity of demand and the elasticity of the supply in the market for which obligated produces operate^[49]. Due to a lack of the data necessary to estimate the relevant elasticity of demand and supply we have instead adopted an approach based on market structures^{[50], [51]}. As explained by the Office of Fair Trading (OFT) the potential cost pass through will theoretically sit between the two extremes of the cost pass through under monopoly, which is 50%, and that under perfect competition which is 100%^[52]. In light of this, we have used these figures as a low estimate and high estimate. The central estimate has been obtained as a most likely scenario from the OFT based on a literature review of empirical research conducted by them. It should be noted that perfect competition is regarded as widely non-existent in reality, and likewise that the industries impacted by packaging EPR are almost certainly not pure monopolies. As the high and low scenarios correspond to these market structures, they should be viewed as theoretical maximums and minimums, rather than outcomes which are likely to actually materialise.

The three modelled scenarios are a low scenario (50% CPT), representative of a pure monopoly; a central scenario (85% CPT); and a high scenario (100%), representative of perfect competition.

The total increased cost faced by all businesses impacted by packaging EPR collectively will be equal to the target net cost recovery. Assuming the cost pass through rate applies the same to all businesses, we can apply each of the rates to this figure (inflated to 2023 prices, plus VAT at 20%)^[53] to estimate the total annual cost passed on to consumers collectively via increased prices under each scenario. The ONS have estimated that there were 28.4 million households in the UK in 2023^[54] and based on this we have calculated that the change to yearly expenditure for the average household will fall between £28.02 and £56.04 depending on the cost pass through rate with central increase being £47.64. This corresponds to a change to weekly expenditure of between £0.54 and £1.07 a week, with a central estimate of £0.91.

This assumes that households do not adjust consumption in response to packaging EPR meaning we assume that they consume the same goods in the same quantities as they did before packaging EPR. This is a reasonable assumption to make as although noticeable when aggregated in weekly terms, the actual price impact per product is low and unlikely large enough to provoke changes to consumption even were consumers to be quite price sensitive with regard to packaging EPR impacted goods^[55].

Does the policy affect the essential services market, such as energy or water?

No.

Does the policy involve storage or increased use of consumer data?

No.

Does the policy increase opportunities for unscrupulous suppliers to target consumers?

No. The risk of suppliers placing packaging on the Scottish market without paying the legally required scheme fees is minimal and would not affect consumers. In fact, increased transparency means that the likelihood of this happening is lower than in the current system.

Does the policy impact the information available to consumers on either goods or services, or their rights in relation to these?

No negative impact on consumers is expected in this respect. On the contrary, one component of the reformed packaging EPR system is better consumer communication. This is expected to benefit consumers in that they would be better informed on what packaging is recyclable, potentially influencing buying decisions and improving recycling rates.

Does the policy affect routes for consumers to seek advice or raise complaints on consumer issues?

No.