On April 1st, the new UK plastic tax will come into effect. The levy on firms will charge £200 per tonne of plastic packaging containing less than 30% recycled plastic. The UK government, who announced the move back in 2018, is hoping that the tax will incentivise firms to use more recycled plastic or even better, not use plastic at all!
Although the tax sounds great in principal – with the negative externalities of plastic usage being addressed, many of the UK’s largest food manufacturers have criticised the design of the tax as they feel it is too difficult to comply with. As a result, they will be forced to increase prices for consumers as their production costs increase. This would be a very unwanted consequence for consumers with inflation already on the rise throughout the UK economy.
Commentators from within the food industry have pointed out that many food products simply cannot use recycled plastic in their packaging for risk of contamination. Therefore, they will just have to pay the tax and it is most likely going to be passed onto consumers.
Considering the UK food industry accounts for around 40% of all packaging in the UK, it appears like a huge oversight of the government to design and implement a tax which potentially could make the situation much worse rather than any better!
THINK LIKE AN ECONOMIST!
Q1. Using plastic packaging as an example, explain what is meant by the term negative externality.
Q2. Draw an externalities diagram to show the intended impact of the plastic tax on the production of plastic packaging. Identify how the market failure is corrected.
Q3. Discuss the likely effectiveness of the plastic tax on reducing the use of plastic packaging.
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