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Producer Responsibility Obligations (Packaging Waste) Regulations 1997 (As amended)

CHAPTER SIX

Changes to Agency fee

This Chapter discusses the Agency fee, the need for some changes to ensure that the Agencies cover their costs, and the implications of the changes discussed in the previous chapters

6.1 The previous chapters have set down some proposals for changes to the Regulations. Some of these proposals will affect the fee payable by producers, and compliance schemes on behalf of their members, to the relevant Agency each year. In addition, analysis undertaken by the Agencies of current fee income and the associated activities being undertaken, has identified that overall there is a shortfall in income based on current required activity. There would therefore have to be changes to the fee regardless of the proposals for change, since the Agencies ²⁴ are currently not recovering their costs as is provided for in section 94(5) of the Environment Act 1995. This chapter looks at those proposals for change which have implications for the Agency fee, and discusses the implications for the Agency fee only, it does not discuss general costs for business which are dealt with in the Regulatory Impact Assessment.

Current fee

6.2 The current registration fee for an individually registering producer is 950 and for a scheme member 460. The Agencies have revisited all the costs associated with their duties under the Regulations. This exercise has identified that, overall, there is a shortfall in income and costs are not covered. It has also identified that cost recovery across directly registering producers and scheme members needs re-balancing. As a result, if the Agencies' monitoring activities were to stay exactly as they are now, before account is taken of any proposals in this paper or any increase in the level of monitoring, the following would be the annual cost-recovery fees -

• a revised fee of 830 for a direct registration

• a revised fee of 600 for a scheme member

These fees have been based on registration continuing as at present with no additional activity by the Agencies.

Implications of proposals for change

Information on reusable packaging

6.3 In relation to data provision, there are proposals that may lead to a fee increase, and there are others that may lead to a decrease in the fee for certain producers. In the discussion that follows, the changes are taken in turn. First, it is proposed that producers should provide information, for all materials, on -

(i) all reusable packaging handled, whether reused or not;

(ii) the proportion of (i) which is imported;

(iii) the proportion of (i) above which is reused; and

(iv) the proportion of (ii) above which is reused.

6.4 This requirement will have an impact on the Agency's data system, which will have to be adjusted to absorb a new table. It also involves additional data entry and reporting requirements and overall, based on current data activities in the Agencies, it is estimated that this will cost an additional 28,000 which would be distributed between all registrations giving a cost of some 5 per registration (28,000/6,000).

On-line data system

6.5 In terms of the costs involved if the UK were to move to an on-line data system, which would marry up with the system that the Environment Agency is already preparing for hazardous waste reporting, an option would be to fund it through a top-up to the fees. While detailed costs have not been established, it is estimated that an on-line database, with revised reporting functionality, may cost in the region of 1.5 million. Decisions have not yet been taken as to whether to go down this route, but the Government would welcome a view from stakeholders as to the possibility of funding this data system through the fee. This would equate to an extra fee of between 80 and 100 per registration/year for three years, depending on number of registrations (this is currently 6,427).

Q32: Would you think this a reasonable way to fund a new on-line system? Would you be prepared to see the registration fee increased by 80-100 per annum for 3 years to achieve this?

Special producers

6.6 It has been proposed that "special producers" should be removed from the Regulations. Currently, businesses who qualify as special producers as defined in the Regulations do not have recovery and recycling, but only data, obligations on the packaging which is special producer packaging. There is also a separate data form for special producers to complete. This change would represent some savings for the Agencies given the small reduction in the time needed by the Agencies to monitor data returns. Overall, the savings are expected to amount to 5,500 .

Late registration and resubmissions

6.7 Changes to the registration fee are proposed, which suggest that there should be -

a. a normal registration fee which supposes that producers (and schemes) register on time and provide the necessary fee and the required data which is as accurate as reasonably possible;

b. an additional fee element which is to recover the additional costs incurred by the Agencies when they have to accept late registrations from schemes (the Agencies do not accept late registrations);

c. a further additional fee element to recover the additional costs incurred by the Agencies when they have to revisit the data collation exercise as a result of re-submitted data.

6.8 The costs associated with administering new data after the deadline and with administering re-submitted data are not currently being covered with the present level of Agency fee. The intention of the proposed new format for the registration fee is to ensure that the Agencies' costs are covered, and that only those who cause the extra costs have to pay them.

6.9 The Agencies currently do not fully recover the costs associated with managing the provision of data by new scheme members (who sign up after the registration deadline) nor from the administration of re-submissions. Thus, a producer joining a scheme after the registration deadline should incur an additional cost of 110 on top of the scheme registration fee.

6.10 Also, where an individually registered producer or a scheme member re-submits data, e.g. as a result of an Agency inspection, a scheme inspection or their own identification of an error, it is expected to cost the Agencies 220 to administer the re-submission and amend the national data set. Thus, a producer who re-submits data will incur an additional cost of 220 on top of any registration fees already paid. A producer who is both late and subsequently has to re-submit data will therefore incur additional costs of 330.

6.11 It is estimated that, with a registration fee structure for individually registering producers and scheme members as set out above, the registration fees would be revised as follows:

Annual registration

6.12 Annual registration is proposed. The proposal to have producers and schemes register annually means little in practical terms for businesses, but does mean there can be a reduction in the procedures that the Agencies currently carry out under the terms of the Regulations, namely writing to producers who have not renewed registration to tell them they are not registered. This is not a significant cost to the Agencies, but it frees up their time in the March/April/May period to concentrate on registration and data monitoring and receipt of the first quarter's recovery and recycling returns from reprocessors.

Approval of schemes

6.13 Approval of schemes seeking registration is an exercise carried out by the relevant Government Department on behalf of Ministers, and there are only minimal costs involved for the Agencies from the proposals on this matter.

Groups of companies

6.14 Two possible changes are discussed in relation to the registration of groups of companies. These are -

a. removing the registration options for groups of companies so that all businesses in the group who are producers (holding companies and subsidiary businesses) are required to register in the same way;

b. retaining the present three registration options for groups of companies, but introducing an additional "premium" to be payable for each subsidiary business to cover the costs of monitoring the data provided by that subsidiary.

6.15 The first approach could, if a group of companies has a significant number of subsidiaries, mean additional fee income to the relevant Agency because each subsidiary above the threshold tests would be registering. At the same time, each subsidiary would also be subject to data and compliance monitoring. However, some subsidiaries currently involved in group registration by virtue of the required aggregation of turnover and packaging handled, would no longer be affected by the Regulations as they would fall below the thresholds. As it is, groups of companies are not currently paying enough in fees to cover the costs of monitoring their subsidiaries, and this would certainly be the case if other changes were made to the Regulations (e.g. on business plans). The main difficulty with the approach described at (a) is that some businesses, whose turnover and packaging handled are taken into account now by virtue of the group registration provisions which require aggregation of all turnover and all packaging handled, would no longer be obligated because individually they will fall below the thresholds. In calculating the costs, it has been assumed that only 33% of group subsidiary businesses would remain obligated. If so, those choosing to register directly with an Agency would incur a fee of 680 and those choosing to join a scheme would incur a fee of 480.

6.16 The second option would leave the numbers of groups registering much the same as now, but a "premium" would be payable for the monitoring of subsidiaries, and this would be intended to cover the costs that are not currently covered, particularly data monitoring. The Agencies have estimated the extra premium or fee cost per subsidiary to be 180, which would allow for additional monitoring of groups. This is based on current arrangements (i.e. a visit on site to monitor every 3 years) and on the overheads costs being taken account of in the main registration fee.

Bringing the accreditation system for reprocessors into the Regulations

6.17 Bringing the accreditation system for reprocessors into the Regulations is likely to have significant cost implications largely because, hitherto, the full costs involved in accrediting and monitoring reprocessors have not been reflected in the fee and full costs have not been recovered. What this means is that the fee income has been spread more thinly than desirable, yet the accreditation exercise has grown both in importance and in terms of the number of reprocessor / exporter applications.

6.18 Incorporating accreditation into the Regulations will build in greater monitoring activity as proposed and enable the costs to be fully set out and recovered by the Agencies. The Agencies' estimate is that undertaking a more structured review/check of business plans, plus a review of an independent revenue report, may take an additional 0.5 to 1.0 day of resource per reprocessor annually. While itself not a major increase in resources, this has to be seen against the background of all accreditation procedures now proposed.

Business plans

6.19 Business plans are required from reprocessors as well as producers (over a certain turnover) and schemes. In relation to business plans, the Agencies can scrutinise a reprocessor's application for accreditation and ensure that a plan is submitted, and that it contains the necessary elements. At year end, the Agencies will check that the auditor's report is received and provides the necessary information. The Agencies cannot require a reprocessor or exporter to spend PRN or PERN revenue on a specific area of investment, but they can require the information about spend to be provided as required. They can also require that the auditor provides the necessary confirmation.

Reprocessors to pay towards the costs of their accreditation/monitoring

6.20 It is envisaged that there will be a fee which fully covers the costs of accrediting and monitoring reprocessors. This fee will have to take account of, and recover, the costs incurred by the Agencies in carrying out any duties connected with the points set out in Chapter Four, as well as the scrutiny of reprocessors and the monitoring throughout the year of their compliance with requirements placed on them. There are two options for the recovery of these costs -(where reprocessor is used this means reprocessors and exporters)

a. that the whole fee should be paid by reprocessors;

b. that the fee should be shared between producers and reprocessors.

6.21 Under option (b) above, it is proposed that the costs related specifically to the accreditation process should be payable by producers as part of their Agency fee, while the costs associated specifically with monitoring compliance of reprocessors and exporters should be paid by the reprocessors/exporters themselves.

6.22 The Agencies have estimated that the full costs related to accreditation are 2,140 per site. If this was borne entirely by reprocessors, it would mean a fee of 2,140 per site to be paid by the reprocessor and a concomitant reduction in fee for producers (direct registrants to 690, scheme members to 480). This is based on the level of accreditation activity remaining as it is now.

6.23 If the costs were shared between producers and reprocessors, the fee would look as follows -

6.24 The monitoring costs to be recovered would be those relating to the monitoring activity that the Agencies carry out to check that reprocessors are complying with the conditions of accreditation and continue to operate according to the standards noted when they were initially scrutinised. This would have to include a check to see that the activity of the reprocessor is consistent with the business plan. The monitoring costs highlighted above reflect the current level of monitoring, which normally includes one mid year monitoring visit to a reprocessor/exporter.

Increasing monitoring activities

6.25 A greater level of scrutiny of reprocessor/exporter activity has been recommended by the Advisory Committee because an enhanced level of monitoring of reprocessors and exporters could improve the level of confidence in the sector and enable an earlier identification of issues. Given the comments of industry over the past couple of years, and the ACP's advice, the Government is minded to provide for increased monitoring activity, but would welcome industry's views on this before taking a final decision. An increased level of scrutiny could be achieved through the application of further resource to monitoring. For example, the Agencies have estimated that doubling the current monitoring effort would add a cost of 450 per reprocessor site.

6.26 There are also proposals relating to changes in the responsibility of compliance scheme operators and the available sanctions against them. One proposal is that compliance scheme operators should be liable to criminal offences and penalties in the same way as individual producers are. Thus, when a compliance scheme operator takes on responsibility for the aggregate obligations that his members would have had but for their membership of the scheme, in a criminal regime, the operator would be liable to be monitored for compliance, and would ultimately, if necessary, face enforcement activity by the relevant Agency. There is not likely to be any additional impact on Agency costs from this change since the requisite monitoring occurs now and enforcement costs are not covered by the registration fee but by Grant in Aid ²⁶.

6.27 There is also a proposal that the Agencies should be able to monitor scheme members and if necessary pursue them with enforcement action, in relation to inaccurate data in the same way as they do producers; and that schemes should, in their operational plans, show what their plans are for monitoring members' data on packaging handled. At present, there is no recourse against a scheme member who provides inaccurate data to the scheme. Monitoring the schemes' plans for their data monitoring intentions as part of the scheme registration process might produce an additional cost overall of some 4,000. The Agencies would incur additional costs where a scheme was identified to be failing to adhere to its monitoring plan and the Agencies had to inspect the scheme, reassess a revised plan and carry out inspections of specific scheme members. It is estimated that these additional costs would amount to an addition of 1,100 for each incident.

6.28 The Advisory Committee have commented on the need for robust monitoring which tightens controls on matters such as data provision, free rider activity and PERN and PRN supply. They have said that the Agencies should assess their resourcing requirements to carry out the sort of monitoring programme outlined by the ACP, and define the gap between resources available and resources required in order to provide a desirable level of enforcement assurance. The present level of monitoring activity by the Agencies would need to be increased if they are to tackle the range of issues outlined in the ACP report. This could be increased in a number of key areas, reprocessors; data assessment & analysis; and free riders.

6.29 Monitoring of reprocessors could be increased in the form of additional monitoring visits or greater assessment of suppliers of packaging wastes to reprocessors. Benefits could be realised through earlier detection of issues and in so doing provide a greater level of confidence to industry and to Government in terms of achievement of Directive targets.

6.30 A significant amount of data is collected annually. With an increased level of assessment and analysis, additional information could be provided on data trends. This would enhance information on a range of matters including the directing of Agency monitoring resource, the identification and investigation of anomalies in collated data sets and also for enhancing the national reporting on the UK position.

6.31 Currently the Agencies direct their monitoring resources to monitoring registered producers and those who may have producer responsibility obligations but are not registered (free riders). An element of the current registration fee covers the costs incurred by the Agencies for monitoring potential free riders. The level of resource directed to the monitoring of free riders could be increased with additional funding to cover the additional resources required. The increase in monitoring could be undertaken at two levels: an increase in the identification of potential free riders and an increase in the monitoring of potential free riders. The former would provide a higher level of targeted monitoring by current resource deployed. The latter would add additional resource to allow a higher level of monitoring of free riders.

6.32 As noted above, the Government is minded to accept the Advisory Committee's recommendation that there should be an increased level of monitoring; there would, however, necessarily be an increase in the associated fee costs for producers. The Government would therefore welcome views on the proposed areas of possibly increased activity and the associated costs. The additional fees required to increase the level of monitoring in the three areas highlighted above would be

Q33:Do you agree that the Agencies should undertake the increased level of monitoring outlined in (a), (b) and (c) in paragraph 6.31 above? If not why not?

Conclusion

6.33 Taking all the proposed costs together, the revised registration fees are summarised below:

A summary of these scenarios is shown in the table below

Table 14: different Agency fee scenarios and associated costs

6.34 There are also some fee elements that may only be incurred if certain situations materialise, as shown below -

Additional fee elements

Q34: The Government would welcome comments on the assessed fee levels set out above.

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