Spinning the bottle: Scotland’s Deposit Return Scheme

The Deposit Return Scheme (“DRS”) came on my radar around seven years ago when it was first discussed. The Scottish Government had very early conversations with some of my retailer clients and trade membership bodies.
As a high level concept, it was welcomed, but even then, trade warned that the devil would be in the detail.

The concept was one which was always, as I understand it, supported by business, who understood that a scheme, properly administered, would have clear benefits for wider society in terms of environmental impact. Retailers across the country took part in pilots and trials after Covid – including large national supermarket chains, as well as local independent shops. Key people within the affected industries have given large parts of their life to the journey of this scheme.

And so it was always with frustration that I read, as the wheels fell off the scheme in 2022 and 2023, that retailers and producers who raised legitimate issues about the details of the scheme were castigated as anti-environmental or positioned as pawns in political fallout between Westminster and Holyrood. The same retailers were the ones trying to make it all work in the first place; and then asking legitimate questions and raising red flags in the hope someone was listening.

Internal Market rules

This all culminated in the very public spat over the United Kingdom Internal Market (“UKIM”) legislation, under which an exemption would have to be sought in order for the DRS scheme to lawfully proceed, to ensure it did not create trade barriers between Scotland and the rest of the UK or impact on competition. Westminster claimed that no request had been made. Holyrood claimed, in my reading of the dialogue, that there was no formal process to make the request and instead general exchanges between the two Governments over the scheme should have been interpreted as the request.

It is highly regrettable that the two Governments were not able to work with one another to reach a decision on UKIM one way or the other far earlier in the journey.

Meanwhile, the public reaction I saw to all of this was to wonder what all the fuss was about. After all, how hard can it be to get 20p for an empty glass bottle, just like we used to back in the day? The reality is that the scheme was nothing like what the public thought it was. My own view is that the scheme was simultaneously undercooked and overwrought, and therefore destined to fail. There were so many operational and practical issues, as well as legal problems, I cannot begin to list them here. Even at the point that the scheme administrator, Circularity Scotland Ltd (“CSL”), fell into administration, affected businesses were still listing dozens of significant implementation issues, none of which had anything to do with UKIM or the political spat but were about simple logistics.

The challenge to Circularity Scotland

My firm acted in a judicial review of the scheme on behalf of our client Abdul Majid & Son Ltd, which related to a discrete point about the “reasonable handling fees”, i.e. the fees which would be paid to return point operators such as Mr Majid by CSL for collecting and storing the items to be recycled. Majid was one of the traders who supported the scheme and offered his shop as a guinea pig to run trials. He had raised repeated concerns about the logistics of the scheme and what he saw as an inequitable approach on the proposed handling fees, given his experiences in the trials.

CSL maintained that it had the power to set these fees, and sought to impose a flat rate to apply to all retailers regardless of their size or situation. Majid disputed that CSL had the power to set these fees, or in any event to impose a flat fee across all return points. He estimated that the fees would result in him incurring losses of around £1,000 per week. In short, the court agreed with him that CSL had no statutory powers to set the reasonable handling fees and under the applicable regulations it was in fact a matter for each return point operator to set the reasonable handling fees with reference to their individual costs: Abdul Majid & Son Ltd v Circularity Scotland Ltd [2023] CSOH 41. In practice this would no doubt have resulted in numerous disputes between return point operators and CSL.

It is regrettable that the Scottish Government and the scheme administrator allowed matters to get to that stage, when it was accepted in court that CSL did not have the power to set the reasonable handling fees.

Why the pressure?

A similar observation could be made regarding the UKIM issue. Some readers may remember the browbeating by ministers in the Scottish Parliament of small businesses that had not registered under the scheme by certain dates. The stress and existential dread around all of this cannot be overestimated. I spoke to many clients during this period who were at their wits’ end. This ministerial pressure was exerted prior to the UKIM issue coming to the fore. Either the minister was asking industry to pay in millions to the scheme knowing it was unlawful, or they didn’t understand or appreciate that approval was needed. Again, it is regrettable that it was allowed to get to this stage.

I was a speaker at the Scottish Grocers’ Federation May 2023 conference when the minister, Lorna Slater MSP, dropped the bombshell that if UKIM approval was not given by Westminster within weeks, the scheme would fail because the administrator was running out of money. This was met with incredulity among those present, particularly those representing the companies who were busy rolling out the delivery of thousands of the reverse vending machines across the country. These machines were designed to take back glass and now may no longer even be usable if a future UK-wide scheme proceeds without glass included.

False comparisons

One of the most depressing elements of this saga is that the public has been allowed to believe that this scheme was child’s play; that it would be just like it was in the 1970s; that it works fine in other countries, so it will work here too. But the scheme is not a “return” scheme, it is a “recycling” scheme, a different animal altogether, with layers of bureaucracy across the supply chain, involving at least three transactional steps for the 20p, never mind the logistics of recycling the products themselves. Comparisons to other countries were, for me, largely false – schemes elsewhere enjoy holistic infrastructural advantages in comparison to the drinks industry in Scotland.

It was only at a late stage that some public voices started to realise that DRS would replace kerbside collections, and to raise the point that persons with a disability or infirmity might struggle to bring their collection of cans and bottles back to a shop. On top of that, the public were consistently told it was just about an extra 20p, which they would get back. Yet producers and retailers were clear that the cost of goods would have to rise beyond the addition of the 20p, to cover their infrastructure costs and higher overheads that the scheme would inflict. All this would have to be passed on to the consumer, during a cost of living crisis.

For me, the DRS scheme is another example of the Scottish Government pushing forward with poor law emanating from policy silos: see also, short term let licensing; alcohol advertising; fisheries. I haven’t spoken to a single retailer or drinks producer who is against a DRS scheme that works. I hope the Government will reflect on the decision in the Majid case and that, working pragmatically with Westminster, they bring forward a scheme/schemes which work without being a wider threat to public services such as kerbside collections, or a threat to Scottish businesses being able to retail products in their country of origin.