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Marks and Spencer is braced for an annual hit of £40mn from sustainability taxes, laying bare the mounting costs UK retailers face beyond those arising from Labour’s October Budget.
The FTSE 100 retailer’s estimated yearly bill stems from packaging levies that will kick in from October, according to two people familiar with the costs.
The levy, which is meant to reduce unsustainable packaging produced by UK retailers, is expected to generate as much as £2bn a year from the sector, according to the British Retail Consortium, which represents 200 large companies, piling further pressure on the industry.
Retailers are already reeling from an increase of as much as £5bn in costs stemming from changes unveiled last year by chancellor Rachel Reeves, including increases to employers’ national insurance contributions and higher wages from April.
Tesco, the UK’s biggest private-sector employer, has said it will have to pay an extra £250mn a year in national insurance, while J Sainsbury, its supermarket rival, said it would cut 3,000 jobs as it accelerates cost-cutting. M&S will already take a £120mn hit from the Budget measures.
The Bank of England said on Thursday that Reeves’ decision to increase national insurance contributions would affect both jobs and prices more than expected, and halved its growth forecast for 2025.
Retailers wrote to Reeves in November to plead for a delay in implementing the packaging levies, which are a new set of laws put forward by the previous Conservative government. Its planned 2024 implementation date has already been delayed once.
“The sheer scale of new costs and the speed with which they occur create a cumulative burden that will make job losses inevitable and higher prices a certainty,” the letter read.
Under the packaging levy — known as the Extended Producer Responsibility, or EPR scheme — businesses pay for household packaging they produce and which consumers must dispose of.
The revenue generated by the tax goes to local authorities but is not ringfenced specifically for recycling.
“It is essential that the government publishes plans as to how EPR funds will be allocated to strengthen recycling efforts,” said Andrew Opie at the BRC. “The funds must be ringfenced, guaranteeing that all money raised through [the scheme] is used by local councils to create and operate a world-class recycling system”.
The Department for Environment, Food and Rural Affairs published the first estimate of base fees for the first year of the scheme in 2024 but retailers are still waiting for final costs to be confirmed.
Veronica Webster Celda, regulatory lawyer at Osborne Clarke, said: “Businesses will need to stay informed about new initiatives and adapt their operations to comply with any new reforms. This may involve changes in packaging materials and waste management practices, among other adjustments.”
Another long-standing concern for retailers is the 2027 introduction of the deposit return scheme, a recycling programme that encourages people to return plastic bottles, typically for a refund. Wales dropped out of the scheme.
“The decision by the Welsh government to drop out of the unified approach [ . . . ] has now made decisions on investment and-roll out of the infrastructure almost impossible at this stage,” said Naomi Brandon-Bravo at the BRC.
Defra said in a statement: “The revenue from extended producer responsibility fees will generate more than £1 billion annually to support local collection and disposal services, whilst the Deposit Return Scheme is a proven way to drastically reduce littering of single-use drinks containers, to drive up recycling rates, and to support the government’s aim to move to a circular economy.”
“We continue to work closely with businesses on our packaging reforms, which will create 21,000 jobs and lead to more than £10 billion investment in recycling over the next decade.”
M&S declined to comment.