UK deposit return scheme may pose financial and regional challenges for businesses

The DRS regulations were enacted earlier this year and are set to come into force in October 2027. The scheme represents a significant step towards enhancing environmental sustainability, aiming to reduce litter and increase recycling rates by incentivising the return of single-use drink containers. A similar scheme will operate in Scotland. 

The DRS targets single-use drink containers made from polyethylene terephthalate (PET) plastic, steel or aluminium, with capacities ranging from 150 millilitres to three litres. By imposing a refundable deposit on these containers, the scheme encourages consumers to return them for recycling, thereby reducing waste and promoting a circular economy.

New responsibilities for businesses

The scheme will be managed by a deposit management organisation (DMO), set to be appointed later this month. The DMO will oversee the collection and refund process, set the deposit amount, and provide detailed guidance to businesses involved in the production and sale of drinks.

Producers, importers, wholesalers, and retailers will be required to charge the deposit on eligible containers and ensure proper labelling.

In addition to labelling products and charging accordingly, businesses will face further new responsibilities under the DRS. For instance, producers and retailers must also register with the DMO. Producers will be required to pay the deposits collected to the DMO when containers are sold to the next business in the supply chain and report the number of drinks placed on the market. Retailers will also need to facilitate the return of containers and refund deposits to consumers. This will necessitate adjustments in supply chain operations and customer service practices.

With limited exemptions, supermarkets, grocery stores, convenience stores and newsagents that sell drinks in containers in scope of the scheme must host a return point for those containers. The return point can be manual or automated using a reverse vending machine. Other types of organisations that sell drinks can apply to host a voluntary return point, such as hospitality venues, school, gyms, sports or community centres.

Opt-out provisions are in place for businesses which sell in scope drinks containers for immediate consumption on the premises. Examples include cafes and restaurants.  However, collection and storage facilities for these containers must still be provided.  The deposit must still be paid to the business’s supplier, with an inevitable delay in refund. A notice must also be displayed advising customers the business is an opt-out premises and requesting customers to leave their empty containers.

Potential issues and challenges

The majority of recycling is likely to take place in large supermarkets in retail parks. With this in mind, there is a growing concern that the scheme may inadvertently drive even more traffic away from town centres.

The DRS will also result in financial implications for duty holders, at a time when many say they can least afford it. There will be costs associated with implementing the scheme, such as purchasing the vending machines and managing the deposits. Setting up, managing and maintaining return points for containers may also be complex, particularly for smaller businesses.

Non-compliance, including with labelling and reporting requirements, may result in penalties, variable monetary penalties, compliance notices and enforcement undertakings.

Regional challenges

There are also potential regional challenges that businesses operating UK-wide must be aware of and consider ahead of the new scheme coming into effect.

The responsibility for waste and recycling is a devolved competence in the UK. However, in April 2024, the previous UK (Conservative) government, the Department of Agriculture, Environment and Rural Affairs (DAERA) in Northern Ireland, the Scottish government and the Welsh government agreed a policy statement to ensure maximum alignment and interoperability of DRSs across the UK. Whilst it confirmed there will be three legally distinct deposit return schemes in the UK: one in England and Northern Ireland; one in Wales; and one in Scotland, the devolved governments were committed to delivering DRSs that are “as interoperable and as simple as possible for consumers and businesses across the UK, whilst achieving the economic and environmental goals of the scheme”. Prior to that, the Scottish government had proposed its own scheme, separate from the rest of the UK, which included glass.  However, after protracted industry criticism and difficulties with the United Kingdom Internal Markets Act 2020 (UKIMA), the Scottish government abandoned its DRS and has confirmed it will “move forward with a scheme for PET plastic and metal drinks containers in Scotland from October 2027”.

Late last year, the Welsh government decided to withdraw from the joint process for a UK-wide DRS. The Welsh government had wanted to include glass in its scheme, which would have required an exclusion under the UKIMA. The UKIMA was designed to regulate trade between England, Scotland, Wales, and Northern Ireland after the UK’s exit from the EU. Its primary purpose is to ensure the free flow of goods, services and people within the UK by maintaining a cohesive internal market while respecting devolution agreements.

Reports indicate the Welsh government did not request an exclusion to the UKIMA, as the UK government indicated it would not be able to consider such a request “within the time necessary” for Wales to take part in the joint process of appointing a DMO for the four nations’ schemes.

Differing schemes in the UK will clearly present challenges for businesses supplying relevant products in both Wales and the rest of the UK. Potential difficulties were well rehearsed when Scotland proposed its own scheme, including the increased costs of meeting differing requirements, the potential for confusion and the possibility of more limited availability of in scope products in Wales.

While the aims of the DRS are to be applauded, a pragmatic view on implementation must be taken, mindful of the burden on business and careful to avoid the need for further changes down the line.