Scotland’s new Deposit Return Scheme (DRS) is due to come into force in August this year.

However, with a new First Minister due to be announced later this month, threats of delays and even litigation surrounding the scheme, will it go ahead as planned?

The Scottish Government is planning to introduce a Deposit Return Scheme where consumers are charged an additional deposit fee (20p) when they purchase a drink in a single-use container. This deposit will be returned once they recycle the empty container at a designated return point. The initiative is due to go live on 16 August 2023 and aims to boost recycling in order to help Scotland achieve its climate change targets.

Since the outset, the Scheme has faced widespread criticism from producers, retailers, and the hospitality trade. Questions have been raised in relation to the implementation, financial burden on small businesses, tax uncertainties, as well as general practicalities. This has led to various updates, amendments to the DRS Regulations and even litigation.

So what are the latest updates?

Producer fees reduced

Following pressure from various organisations and threats of legal challenges, Lorna Slater, the Circular Economy Minister in Scotland responsible for the Scheme, issued a comprehensive update in December 2022. She announced an 8-40% reduction in producer fees, whilst expanding exemptions so that some smaller retailers are not required to operate as a return point.

Many felt that these updates did not go far enough, and the DRS would continue to impose a significant financial burden upon smaller businesses, including producers. Many trade groups and associations have demanded that the rollout of the Scheme should be delayed.

A pause for smaller producers?

Just this week, Lorna Slater has conceded that she is “actively considering” pausing the implementation of the scheme for smaller producers for one year. No further clarity has been provided as to who may benefit from these exemptions, however she maintained that the Scheme in general would go ahead this August.

Go live delayed?

Despite the comments from Ms Slater, concerns surrounding the DRS have been further heightened by the race to replace Nicola Sturgeon as leader of the SNP and the new First Minister. Kate Forbes, one of the three candidates, has pledged that she would delay the introduction of the DRS, if elected. Ms Forbes has appealed to businesses by stating that although the Scheme is well-intentioned, firms need “breathing space” to recover from the pandemic and cost-of-living crisis before the DRS obligations are imposed on them, which has the potential to cause “economic carnage”.

Litigation

One business has gone so far as to raise court proceedings against the Scheme administrator, Circularity Scotland Limited. In December, the Court of Session granted permission for Abdul Majid & Son Limited to proceed with its Judicial Review petition. Majid, a convenience store retailer, is concerned that it will be impossible to implement and oversee the DRS financially, especially in a cost-of-living crisis. Although retailers are paid fees for accepting returns, there appears to be a consensus among retailers (mainly small businesses) that these fees will not be sufficient to cover their costs of implementation.

Unlawful trade barrier within the UK?

One of the concerns that has been raised is how the DRS would interact with the Internal Market Act 2020, potentially hindering trade between Scotland and England given the imposition of a 20p deposit only on drinks containers sold north of the border.

The Act was introduced by the UK Government with the aim of avoiding regulatory divergence and trade barriers in relation to goods and services within the UK domestic market following Brexit. It enshrines two core principles of mutual recognition and non-discrimination, including in relation to price.

The Act does permit the addition of further exclusions, the first instance of such an addition being the Scottish Government’s legislation to ban the supply of single use plastics in Scotland – making the ban fully effective as against products sold in Scotland but produced in or imported into other parts of the UK. Aidan O’Neill KC, who has been instructed to advise a group of distillers, has recently claimed that concerns around the interaction between the DRS and the Internal Markets Act are “well-founded” and that charging higher prices in Scotland could breach the terms of the Act. He has suggested that the Scottish Government should consider delaying implementation until 2025, to go live together with the UK-wide scheme planned for 2025, and also that companies who have already prepared for the DRS may be entitled to recover their investment from the Scottish Government, if the Regulations are not exempt.

More Westminster versus Holyrood storms are forecast: Lorna Slater has stated that there is a “formal process” underway to seek a trading exemption,  however, it has been reported that the UK Government is set to refuse this permission.

Next steps

The Scottish Government has remained adamant that the DRS will be introduced in August this year. However, with a lot of questions yet to be answered, and a new First Minister due to be announced on 27 March, it is clear that the position is something of a moving feast.

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