Packaging tax may be ‘catastrophic’ for small food businesses

How much companies have to pay depends on their size: a business with sales of between £1 million and £2 million is classed as a “small” producer, while a company with sales of more than £2 million is classed as “large”. There are also annual registration fees of up to £2,620. The Food and Drink Federation, an industry trade body, estimates that EPR compliance will cost businesses £1.4 billion in the first year.

Maggi says the new tax will result in a bill of £50,000 for Sweet Freedom, the company she runs that makes spreads and syrups without sugar or artificial sweeteners and has a turnover of £2.5 million.

In addition to the rises in minimum wage and employers’ national insurance contributions, plus a fourfold increase in the price of cocoa in the past year, the EPR bill means that Sweet Freedom will make a loss this year. “This is tougher than anything I’ve ever faced in my entire career,” Maggi said.

Stu Macdonald is leading a group campaigning for ministers to reconsider the packaging tax

She is one of more than 100 small food companies who are campaigning for the government to rethink the regulations and to stagger the introduction of fees to reduce their impact. The group is being led by Stu Macdonald, the founder of Manilife, a natural peanut butter brand, who described the tax as “shambolic”.

He said: “It’s existential for lots of businesses, and the people who came up with the rules aren’t even aware of this. We will survive it but had it happened a year ago, I’m not sure we would have done.”

Macdonald estimates that Manilife, which has annual sales of £7 million and is therefore classed as a “large” producer, will have a bill of about £200,000 in the first year of the rules coming into force. The first bill, on items that were sold in the year to April 7, 2025, is due on October 1 this year.

Macdonald said “the majority” of the businesses that are part of his protest group “had no idea about this until a month or two ago”. He said small companies that are not members of trade bodies were not properly consulted about the changes, a charge flatly denied by the Department for Environment, Food and Rural Affairs.

The department said: “It is categorically untrue that small producers have not been consulted; there has been extensive engagement to give businesses a clear understanding of how the scheme will be designed and implemented.”

As someone who has spent her career helping food companies to grow, Katie Jewitt, who is chief operating officer of Momo Kombucha, a drinks business, says she had been aware that changes were coming down the track for “a couple of years”. When she joined Momo seven months ago, she was not “too concerned” as she believed that the company was “under the threshold”.

Katie Jewitt, chief operating officer of Momo Kombucha

It later became apparent that Momo, which expects sales of £4.4 million this year, would be on the hook for tens of thousands of pounds in the first year of the tax, and more than £100,000 next year. Momo, as well as Manilife and Sweet Freedom, will be especially hard hit as its products are packaged in glass. “It’s charged at a flat rate per tonne, rather than per unit, and the impact of that is that glass is obviously significantly heavier than less sustainable materials, such as plastic,” Jewitt said.

Unlike other companies, which could choose to pack their products in plastic or aluminium cans instead, Jewitt said the glass bottles were “essential for both the product integrity and consumer trust, so we have no choice but to stay in glass”. Momo recently invested more than £200,000 in a new glass bottling line in south London.

Jewitt described the rules as “catastrophic” for small food companies. “It’s caused a lot of panic and frustration where people are just finding out about it now and realising if they have to take on the full liability of the costs, there are hundreds of businesses that will go out of business.” She said Momo, which is lossmaking, had been due to break even in 2025 but that has been delayed “by at least a year” as a result of the tax.

“How they expect SMEs [small and medium enterprises] to just magic this money out of thin air when most SMEs actually have real cashflow problems and have to manage on an almost daily basis the outgoing payments and incoming funds, they just would have no concept of how small businesses work in the UK,” Jewitt said. She added that it would be consumers who ultimately lose out when prices have to rise in line with the extra costs faced by producers.

Maggi had to increase prices at Sweet Freedom by 12 per cent to offset some of the rising costs of cocoa and is reluctant to raise prices again. “It would just make our selling price too high and we think our sales would drop.” She is instead looking at where she can make cuts to budgets, particularly where she outsources work to external agencies and freelancers.

“It’s so difficult because if we cut our marketing budget, then people are less likely to hear about the brand, which then impacts our rate of sale. So we’re having to look at our overheads and where we outsource and bring that back in house, which means it’s all hands to the pump,” Maggi said. She is worried that this will affect the growth prospects for her company and others in a similar position. “The government’s meant to be about economic growth but what they’re doing at the moment is stifling entrepreneurs and small businesses from growing.”

Dr Will’s uses dates, rather than sugar, to sweeten its condiments

ELEMENTS PHOTOGRAPHY

Liam White, co-founder of Dr Will’s, a condiment maker that uses dates rather than sugar to sweeten its products, said concerns about the packaging levy “adds to the cocktail of things that keep you awake as a small business owner”. He has calculated that compliance with the new rules will cost his business, which has five staff and annual sales of £2 million, about £35,000 in the first year. White said he may need to raise some extra capital from investors “to be able to cover ongoing EPR costs”.

Like others in Macdonald’s campaign group, White is hopeful of a last-minute reprieve. “We’re waiting to see what happens, because the campaign is really strong so I have some hope that there’ll be a rethink on it.”

However, John Redmayne, managing director of European Recycling Platform, a consultancy that helps businesses comply with regulations including EPR, says companies should not delay. “We expect that the policies will continue to evolve and … we know that the government is listening but we also know that they are standing firm at pressing ahead with this policy,” he said. “These regulations aren’t going to go away, so it is best for companies to have a look at this and if they think they may get caught by these new regulations to get some advice and get registered.”

The government said: “We are committed to cracking down on waste and boosting recycling, with the extended producer responsibility for packaging being a vital first step for our packaging reforms.” It added that the reforms will “create 21,000 jobs and help stimulate more than £10 billion investment in recycling over the next decade”.