UK Budget 2025: landfill tax rates will not ‘converge’

The government consulted earlier this year on proposals which, if implemented, would result in a single rate of landfill tax being imposed by 2030. However, it has now confirmed that it will not take forward those proposals. Instead, the lower rate of landfill tax will be increased to match increases planned to the standard rate.

Landfill tax is a weight-based tax due on material disposed of at permitted landfill sites in England and Northern Ireland and those sites that should have a permit but do not. The tax is collected from operators or controllers of landfill sites who pass the cost on to waste producers and the waste industry, as well as local authorities disposing of municipal waste.

Currently, the standard rate, which applies to materials such as plastics, textiles, metal and paper, as well as contaminated soils and certain construction waste, is levied at £126.15 per tonne. The lower rate, which broadly applies to inert, less polluting materials, including concrete, bricks, ceramics and natural soils, is levied at £4.05 per tonne.

The government has expressed concern at the difference that exists between the standard and lower rates of the tax. Among other things, it believes it “provides a perverse incentive to misdescribe standard rated waste as lower rated, to evade tax”, such as through the mixing of waste that would be subject to the standard rate with soil so as to qualify it as inert and eligible for the lower rate. In consulting on potential reforms in April, the government also said (28-page / 828KB PDF) the differential “undermine[s] legitimate operators and cause environmental and social harm”.

The concerns prompted proposals to converge the two landfill tax rates into one by 2030 but the government has now rowed back on that idea and the proposed removal of other exemptions after feedback from industry.

“Having considered the responses carefully, the government has decided that now is not the right time to converge to a single rate of tax and is not proceeding with the consultation proposal to transition to a single rate of tax by 2030,” the government confirmed in a new policy paper (30-page / 670KB PDF).

“However, the government does believe that the current lower rate is too low and does not provide a sufficient price signal to support investment in alternative waste management options…The government has decided to prevent the gap between the two rates getting any wider over the coming years in a way that, taken together with other decisions, will continue to support the government’s targets on housebuilding and infrastructure delivery. Therefore, the government will increase the lower rate in line with the cash increase of the standard rate.”

The change in policy was confirmed by UK chancellor Rachel Reeves in her budget announcement on Wednesday. The Treasury’s accompanying budget document (150-page / 4MB PDF) confirmed that the landfill tax rates for 2026-27 will rise – for the standard rate, in line with inflation as calculated in accordance with the retail price index (RPI) metric; and for the lower rate, “by the cash amount of the increase in the standard rate”.

Tax expert Bryn Reynolds said: “Whilst businesses will be relieved that the proposed increase in the lower rate to over £100/tonne has been discarded, the decision to maintain the current gap between the rates in cash terms could still be material for the sector. RPI is running at over 4%, suggesting that the lower rate could more than double next year.”

Tax lawyer Abigail McGregor added: “Whilst the decision to scrap rate equalisation will grab the headlines, the retention of the existing landfill tax exemptions such as for quarrying will be welcomed by many construction businesses.”

A Finance Bill to give effect to the rate rises will be introduced into the UK parliament in due course.