Deposit Return Scheme: Key considerations for drinks  producers and retailers in the UK

What is happening?

Defra has now responded to its consultation on the introduction of a DRS in England, Wales and NI. The DRS will require retailers to charge a small fee on certain drinks containers sold, which consumers can reclaim if they return the container to a designated return point.

Why does it matter?

The DRS will have cost and production implications for producers and retailers of drinks. Crucially, the introduction of the separate Scottish DRS (currently due to be introduced in March 2024) may result in trade and competition issues within the UK.

The England, Wales and NI scheme

According to Defra, any brand owner (including an importer) that sells drinks in Scheme Articles on the market in England, Wales or NI will be considered a producer under the scheme.

Producers will be required to place a deposit on all Scheme Articles (value to be determined) when they are sold to wholesalers or retailers, and to pay a producer registration fee to help fund the DRS. They will also be required to register with and report data to the Deposit Management Organisation (DMO). The DRS is also likely to include the mandatory labelling of Scheme Articles with ID markers so that they can be recognised when they are returned to the point of sale.

 The value of the deposit will be added to a Scheme Article’s sales price by retailers, who will also need to operate a return point for the empty bottles and cans (unless exempt). Consumers will be reimbursed for their deposit when they return a Scheme Article to the retailer, and the cost of the reimbursement will then be passed back up the supply chain.

The most recent consultation response produced by Defra indicates that PET bottles and steel/aluminium cans will be within scope of the DRS in England and NI, and that PET and glass bottles, as well as steel and aluminium cans will be within scope in Wales.

Producers and retailers that do not comply with the scheme will be subject to sanctions, although the level has not yet been determined.

The Scottish scheme

Initially set to launch in August of this year, the implementation of the Scottish DRS has recently been delayed and is now due to be introduced on 1 March 2024. The Scottish First Minister has confirmed that the additional time will allow the Scottish Government to work with business and Circularity Scotland to ensure the Scottish DRS launches successfully next year.

Whilst the principles of the Scottish DRS are similar, but not identical, to the scheme for the rest of the UK, they are not identical. A key difference is that glass bottles will be considered Scheme Articles in Scotland, meaning there will be a divergence between Scotland and Wales, and England and NI.

 Each time an in-scope product is sold along the entire supply chain, the deposit is charged and paid by the buyer at that stage in the chain, with the money being reimbursed back to the seller. Customers pay 20p to Retailers, who will have paid 20p to their wholesaler or direct to a Producer, who will have paid the 20p to the Scheme Administrator. For example, where a producer places 100,000 Scheme Articles onto the market, they would need to pay £20,000 to the Scheme Administrator, the cost of which they would pass on when those products are sold to wholesalers or retailers.

Producers will have to register with Scottish Environmental Protection Agency (SEPA), pay their fee and charge the deposit on each Scheme Article they sell. They will also be responsible for arranging the collection of empty containers and paying handling fees to retailers.

Retailers will have to decide how to accommodate the impact that the additional 20p will have. They will also need to operate a return point (unless exempt) and ensure they have space to store empty containers in a safe way. The Scottish Government has made clear that the deposit should not be subject to VAT, but the position has not yet been settled with the UK Government or with HMRC.

What action should you consider?

In preparation for the introduction of the DRS, retailers and producers of Scheme Articles are advised to consider the changes that will be required to their product labels and retail space to comply with the provisions of the DRS. It may also be sensible to consider the impacts that an additional fee being charged at the point of sale will have on their business. The Scottish Government is considering options to offer financial support or a total exemption for smaller retailers and producers, and the UK Government has expressed an intention to follow suit with the England, Wales and NI Scheme.

Separately – and assuming its introduction is not delayed further – from 1 March 2024, under the Scottish DRS it will be an offence to sell Scheme Articles in Scotland that have not been designated for sale in Scotland. Producers and retailers that import and sell Scheme Articles from outside Scotland will in effect be required to ring-fence those drinks through specific packaging so that they can be identified as designated for sale in Scotland.

UK Ministers and major retailers alike have raised serious concerns about the bifurcation between Scotland and the rest of the UK, and the impact this may have on cross-border trade. Concerns have also been raised about the impact of the DRS and Scottish DRS on trade globally, as producers and importers may have to overcome significant hurdles (both financial and administrative) in order to continue selling products to UK consumers.

This looming trade friction between Scotland and the rest of the UK could be seen as an additional burden on businesses, arising at a time when retailers are already grappling with the impact of trade friction following the UK’s exit from the European Union.