Net Zero, Energy and Transport Committee

Meeting date: Tuesday, March 28, 2023

Official Report 791KB pdf

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Deposit Return Scheme

Our next item of business is an evidence session with Circularity Scotland as part of our consideration of the deposit return scheme. I refer members to the papers for this item. Circularity Scotland will have a crucial role as the scheme administrator, and today’s session is about hearing more about that role and about overall preparedness for the scheme’s launch. I am pleased to welcome David Harris, the chief executive; Irene Steel, the chief finance officer; Simon Jones, the chief operating officer; and Donald McCalman, the programme director, all from Circularity Scotland. Thank you for accepting our invitation.

I also welcome Fergus Ewing, Maurice Golden and Brian Whittle, who are in attendance for this session. I will offer you a brief opportunity to ask your questions near the end of the session, so that committee members can ask their questions first.

I believe that David Harris would like to make an opening statement.

Thank you very much, convener, and other members of the committee, for the opportunity to speak to you this morning. We recognise the parliamentary, business and public interest in the deposit return scheme and in us as the scheme administrators, and we welcome the opportunity to appear before you today.

Collectively, the four of us who are sitting before you today have more than 100 years’ experience in recycling, packaging, the drinks industry, fast-moving consumer goods, logistics and the retail sector.

Irene Steel, our chief financial officer, has managed financial operations for Marks & Spencer, Heineken and the Edrington Group, and was most recently finance director of Genius Foods. Simon Jones, who is to my far left, is our chief operating officer. He has 25 years’ experience in retail and logistics and has worked across the United Kingdom with Tesco and DHL. To my right is our programme director, Donald McCalman, who has managed major transformation projects across utilities, financial services, entertainment and the public sector. As chief executive, I bring extensive experience from leadership roles in the plastics and recycling industries.

The Deposit and Return Scheme for Scotland Regulations 2020 place new legal obligations on producers and retailers to ensure that the scheme objectives are met. The legislation is in the category of producer responsibility, which means that producers have to take more operational and financial responsibility for the containers in which their drinks are sold. In simple terms, each producer must collect and process 90 per cent of its containers to ensure that the fees and deposits are paid to retailers. In practice, individual producers cannot operate independently to achieve that, so Circularity Scotland has been established solely to deliver those responsibilities collectively on behalf of all producers who appoint us as their service provider.

I am sure that, during today’s proceedings, we will cover the detail of how we were set up and are managed and operated.

We would like to say at the outset that we are proud to be involved in administering the deposit return scheme, which will make Scotland a cleaner, greener place to live by ensuring that materials are recycled to the highest standards and by reducing litter.

10:45  

At the outset of the session, I offer my personal assurances that I understand that all of you, as elected members, will have engaged extensively with businesses and producers in your constituencies, some of whom may have concerns about the operation of the scheme. The team at Circularity Scotland is working incredibly hard to implement solutions to common concerns from businesses and to work through the scheme implementation on a one-to-one basis with individual businesses, as appropriate. We have a team who are resourced, ready and willing to help, so if businesses in your constituency are concerned, please put them in touch with us.

To provide some information about Circularity Scotland’s constitution, we are an independent, not-for-profit, membership-based organisation. Our members include drinks producers, retailers and trade associations. Together, they account for more than 90 per cent of the scheme articles sold and returned in Scotland. We are governed through a membership agreement that all members sign, which sets out our guiding principles. Our members vote on the appointment of our directors, who are all individuals of substantial industry experience.

We were tasked with building the infrastructure for the deposit return scheme, which will be the largest waste management operation in the UK. We were charged with doing that within 15 months and without any start-up resource. From that point, we have secured £100 million of investment, have a team of almost 50 and, together with our contractor Biffa, will be creating 600 jobs.

Although the deposit return scheme is new to Scotland, the idea is not new in other parts of the world. We have sought to learn from the growing amount of international experience. The deposit return scheme represents a major shift in Scotland’s approach to recycling and it will have an impact in every part of the country. We know that you have legitimate questions about the implementation of the scheme and we look forward to answering those questions to the best of our ability.

We understand that there is some confusion about the role of various organisations in the development, execution and regulation of Scotland’s deposit return scheme, and we welcome the opportunity to attend the committee to help clarify the objectives of Circularity Scotland.

Thank you very much, David.

I remind members that we are trying to get to the nub of the problem and to identify the issues. As convener, I note that there have been quite a lot of interesting responses in the chamber, which are best for the chamber. This session is about delving down into the nitty gritty of the problem and I hope that members will support me in achieving that.

I will start. There is a pretty high bar for membership of Circularity Scotland—10 million containers on to the market, 20 million containers on return, trade associations representing companies that place more than 10 million. What slightly concerns me is how the smaller person—the smaller producer or retailer—can feel that they are represented and that their views are heard in Circularity Scotland. It seems to be a big scheme with big players, ignoring the little players. David, do you want to answer that?

I will ask Donald McCalman, who was involved in setting up the company, to provide a little more detail. However, the first part of the answer is that our membership involves trade associations, three of which represent convenience stores at the small or SME end of retail. Also, if we look across the trade associations on the producer side, we have the Wine and Spirit Trade Association and the Society of Independent Brewers, which are much more geared towards small companies. There are also people such as the British Beer and Pub Association and the British Soft Drinks Association, which, as nominee, are representing many small, SME-sized businesses.

It would be helpful if Donald gave some more clarity around how the business was brought into being and how those rules were set.

If we go back to before the company was established, the deposit return scheme has always been set up as an industry-led initiative. Before the legislation was laid, four organisations, four producers and three trade associations got together to start thinking about how industry would respond to the new obligations coming its way. Three of those organisations were trade associations representing a broad range of organisations in terms of size.

That group came up with the general model of the membership criteria in order to reflect the fact that, although large organisations probably have more say they also have more of a role and a commitment to make with regard to the overall recycling targets. The model also ensured that the smaller organisations had a vehicle to express their views, as well.

That model was, in essence, codified into what the convener summarised. Of our 32 members, something like six or seven are trade associations. Those trade associations represent some of the smallest brewers and retailers in the country, which absolutely have their views heard to the same extent as others around the table through the very competent and vociferous presence that their trade association has as a member of the company.

I hear what you say, but if I was a convenience store in a local village, I am not sure that I would feel that I was getting the representation that I needed. I will come back to that, if I may, at the end.

The first set of questions comes from Jackie Dunbar.

Good morning panel. I have a number of questions and I plan to leave it in your hands as to who is best to answer them.

My first questions are about the challenges that have been flagged up in the gateway reviews with regard to transitioning the DRS from being Government-owned to industry-led. Will you explain how the transition is working? Are you confident that the different roles in the scheme—including those of yourselves, SEPA, Zero Waste Scotland and Government—are clear? Do businesses know where to go to get the support that they need?

Clearly, we have clarity about where our responsibility lies. We are industry’s vehicle for meeting industry’s responsibilities under the regulations. It is the job of Government to set the regulations, while SEPA’s job is to enforce and regulate; it is our regulator. Whether they are a member, a producer who registers for us to be their scheme administrator, or someone who registers with us as an operator return point, we answer to them. They are our customer; they are our master, in that regard.

Overall—by which I mean across society—we have found that there is a lack of clear understanding as to how those roles are defined. We seek, at length, to communicate that. We have communicated extensively; we have websites, we write to affected businesses, we seek to find affected businesses and we have online marketing and a marketing campaign to communicate with businesses, so that they understand where we fit into the scheme. We have also been on the road; we have held conferences and road shows and spoken face-to-face with 1,500 businesses that are affected to get the message out and help to clarify.

Being open, we have found frustrating the level of media coverage that does not deal with the facts of the work that we are trying to achieve or exactly what our role is. We are not an arm of Government. We are here because industry has accepted its responsibilities. We are working hard and we keep expanding our communications capability to do everything that we can to enable people to understand that. That is why we do not say lightly that we have a team sitting in Glasgow waiting to talk to any of your constituents who are concerned. We want to take businesses by the hand and support them through the process.

I will add one more point. Those of you who read some of the earlier gateway review reports will have seen the recommendations about establishing a joint communications group made up of the Scottish Government, Zero Waste Scotland, SEPA, the regulator, and ourselves.

It is fair to say that, in the early days, there was an element of missed co-ordination. Those organisations, to a greater or lesser degree, wanted to have conversations with businesses about the specific roles that they play, because they have very clear, separate, defined roles. We took the view that we have to co-ordinate that, because, to take the convener’s example, a small convenience store wants to have a relatively simple, straightforward, consistent series of messages as we go through the process of working out what the scheme is about and getting live. We have therefore stepped in and we are co-ordinating, organising and ensuring that there is a consistency of message, timing and media to bring some simplicity to that.

However, the individual organisations have very separate responsibilities. For example, SEPA, as the regulator, is clearly there to ensure that all parties adhere to their new obligations. We work closely with SEPA, but it also regulates us, so we have to keep an element of separation.

I, too, have been contacted by small convenience stores. One of the questions that they have raised with me—I actually understood this point, because I am a former grocery stock controller—was about point-of-sale labels. They say that they are still trying to find out what those labels have to say. I am talking about the shelf labels with the DRS information on them. The stores have asked whether, if something costs £1, the labels have to say that it is £1 plus 20p for the DRS or whether the labels have to say that it is £1.20, which includes the DRS.

Stores are still trying to get confirmation on that. I know that people in the outside world will think that that is a simple thing, but those stores have systems and programmes behind the scenes, and they need the information now so that they can be ready for 16 August. Can you give some clarity today?

There are a couple of ways of responding to that. There are around 35 provisions in the regulations, and they impact different people at different times. We pick up on two of those provisions, which are important and sit in the middle. We have responsibilities to ensure that we deliver the producers’ obligation to collect 90 per cent of their containers.

There are, absolutely, new obligations on retailers to ensure that, when consumers are in a shop, they understand that there is not a 20p increase in price but a 20p deposit that they can get back. The Government has put those obligations on those organisations. We do not have a role—we do not have any control or influence over the retail side.

Those organisations are getting a lot of help from their trade associations, and SEPA has also provided support and has a comprehensive website. We do not have the ability to influence or control those shop operations. That is a new obligation—the Government has said, “Retail, you have to comply with this.” The regulator and trade associations are probably the best sources of advice and support, because those organisations understand how a retail environment works.

If you cannot give that advice, who can I say that those stores need to contact for advice so that they can start getting their systems in place?

We are working with a number of trade associations across the convenience sector. They are expert in understanding how the regulations affect the retail side, and we think that they would be an excellent source of advice. Ultimately, SEPA is the regulator and has a role to ensure that regulations are made available to and understood by everybody. It has an excellent website, which would also be a good source of advice.

I am slightly scratching my head on this. What is the advice? What are retailers supposed to do, apart from consult with somebody else?

Donald McCalman will correct me if I am wrong, but the issue that we have is that trading standards and SEPA have not agreed on the correct approach.

Sorry, but hold on. I apologise to Jackie Dunbar for jumping in on her question.

Circularity Scotland is running the scheme. If somebody rings your office, as people have been advised to do to get the information that they need to run the scheme, and the answer is to ring SEPA or whoever else you suggested, that is not advice—it is passing the buck. I am sorry, but I am confused. Help me, please.

We are not able to make that decision about what the correct approach is, because it is between trading standards and SEPA, as the regulator, to agree on the correct approach for shelf-edge labelling and pricing labelling on multipacks. We do not have the authority or power to make that decision.

I am totally confused, then, about how the scheme works, if we do not know what we are doing at the outset.

Convener, you said that we are running the scheme. That is a short statement but, to be pedantically clear, we are not running the entire deposit return scheme. We have a responsibility to deliver a large part of it on behalf of the producers who have the legal liability. The legislation that the Scottish Government has introduced places additional obligations on the retail sector, for example, to act as a return point. That is not within our scope—that is not what we were set up to deliver.

11:00  

Sorry, Jackie—I will come back to you after this question.

The other day, I went into a shop—which will remain nameless—to buy 24 small bottles of water for £3 in total. There will be an additional 20p for each bottle. My maths suggests that the deposit will be more than the cost of the water. However, we do not know how that will be labelled and shown to the consumer, who is being told that there is not an increase in price. I am sorry, but I am totally confused.

For the vast majority of retailers, things are relatively straightforward. The regulations are quite clear that, at the point of sale, retailers need to make it clear to the consumer that there is a 20p deposit, so it will be obvious that they will get that 20p back once they return the empty container. That is exactly how more than 50 other deposit return schemes around the world work. Hundreds of millions of consumers live and operate in that environment.

There will absolutely be a change for everybody in Scotland—there is no doubt about that. We have had a couple of different deposit return models, but they have had a narrow focus. We are talking about a nationwide scheme. It sounds complicated, but it is pretty straightforward. There are absolutely some technical issues to be resolved with regard to how shelf-edge labelling is handled. I know that some stores use digital mechanisms. SEPA, the Scottish Government and trading standards are discussing where the deposit information should sit with regard to the price on a price-marked pack, and the matter is close to resolution.

I am confused, because what you have just said suggests to me that retailers should know what to put on the label, but they tell me that they do not know what to put on the label. Do they need to list the 20p cost separately or together with the price? To me, that is a simple question.

I agree that that is a simple question, which SEPA, the Scottish Government and trading standards organisations have been asked for some time. It has been owned for resolution by the Scottish Government, and the Scottish Government is close to resolving it. I do not think that there is any doubt whatsoever that that is not an ideal position. Government officials have been working on the matter for some time, and they are close to resolving it.

I am going to push you to go to the next question, Jackie, having identified a flaw in the system.

I was just about to move on to the next question. Thank you, convener.

Another question that has been raised with me is about the collection of containers from small retail sites—by that, I mean the manual uplift of containers, not vending machine uplifts. Do you know, or is it in your gift to know, how often such collections will happen? I realise that that will depend on how many containers are brought back, but what are the criteria for the uplifts? Will they be once a day or once a week, for example? That will have an impact on the space that local stores have available.

I ask Simon Jones, who is in charge of the logistics operation, to answer that question.

We recognise that collections are important, and we want to create a meaningful and efficient schedule that matches people’s requirements and is as cost effective as possible.

Currently, we are asking people to register so that we can understand what their schedules look like and where we need to go to collect containers. We recognise that there is a big issue relating to space for small stores in particular. We are trying to ensure that those guys have the ability to put down their estimated number of returns when they register with us. The collection frequency will be calculated from that estimate. If they do not agree with the suggested collection frequency, they absolutely have the opportunity to put in some free text to say why that is an issue. Invariably, the reason will be space. At that point, customer services and Biffa will get in touch with those guys to create a schedule that suits the needs of those businesses.

We are absolutely trying to work with the small guys as well as the big guys to ensure that we create a collection schedule that suits their needs. If there are further issues, the smaller guys have the opportunity to apply for an exemption. If they are in a rural location, that is obviously not ideal for them, so we want them to get in touch. We will then visit them and try to understand how we can help them to meet the needs of their shop and their collection needs.

Am I right in thinking that stores can get an exemption only if they are 400m from a bigger retail store?

There are also exemptions for health and safety, fire safety and food safety. It depends on the size of the store. If it is 100m² or less, it can apply for a size exemption. If it is 280m² or less, it can apply under food-to-go, fire safety or health and safety.

Thank you for the clarification.

I have been told that there will be an app for mobile phones for the manual take back of containers. Do you know when that will be up and running so that small retailers can get a grasp of it?

It is in the final stages of development and testing, and it should be available at the end of May or the beginning of June. It will be rolled out for people to be able to see what it does.

How do you assess how well prepared you are for the August launch date? What is your level of confidence that you will be able to go live? Are there any milestones that you still need to reach in order for that to happen?

There is a great deal to do. We did not set the timetable; we were given a timetable. From the point when that was set, we had to find the money to run the operation, establish the partners, and put the contracts in place to build the infrastructure. We have been working around the clock to deliver for 16 August, and we continue to do so. We have a path to being ready.

As you would imagine, there are many milestones in delivering information technology systems and the various elements of logistics infrastructure, but that is happening. Counting centres are being set up, machines are being installed, and vehicles are on the way. That is actually happening in the physical world.

We are constantly looking at refining what will be available on day 1. The scheme will build up over time. As you would expect, we have a significant project management team in place to manage and measure that.

Would Donald McCalman like to talk more about how we manage the process?

Certainly. There is a multiworkstream programme that includes IT, communications and commercial operations—all the things that you would expect. We have a great team of project managers and programme managers, and we have all the traditional tools that you would expect to see for risk management and contingency management. Our partners, which are, obviously, heavily responsible for large parts of delivery, have equally competent and strong teams. We have assurance over them through regular steering group meetings. We have an integrated plan. There is everything that you would expect to see in a large and complex delivery.

There are risks ahead of us. We have plans in place to address those risks and, as David Harris said, we are confident that we are going to be ready to go on 16 August.

Okay. Do you want me to go on, convener?

There is a whole lot of supplementary questions. If you will excuse the expression, you have let the cat out of the bag.

I want to take you back to the first question. The name Circularity Scotland implies that the process will be circular and end to end, but you have said in your answers that you are responsible only for the producers. You offloaded retail responsibility to SEPA, trade associations and the Scottish Government. Are you implying that a similar organisation should have been set up for retailers that would do something similar to what you do for producers?

It is important that I clarify that point. When we talk about responsibility resting with SEPA or trading standards, for example, we are talking about a specific point about the rules around labelling, which is very much outside our scope.

We are run 50:50. Half of our organisation is the return point side—retail and hospitality. When there are votes on membership matters, 50 per cent come from producers.

As part of discharging the responsibilities for a producer, it is our responsibility to provide that service to the retailer. The retailer has an obligation to operate a return point; it is the producer’s responsibility to service that return point and manage the interface with the retailer.

The regulations place responsibilities on retailers, just as they do on producers. A retailer has responsibility for meeting its obligations and operating a return point. If there are issues within that retailer’s business, we cannot make decisions for it, but we are keen to support it. We have a customer service team and, whether we are talking about the largest retailer or the smallest convenience store, we are keen to be in a dialogue with it. Whether there is an issue with exemptions or on the service and collection side, the team is there to talk to the retailer and support it, so that there is integration between us.

Good morning, panel. I have a brief question that arises from Jackie Dunbar’s question about your preparedness for 16 August. What contingency planning are you doing for the scheme if it is not ready to go live on 16 August?

The timetable has never given us a great deal of time contingency. When we were appointed as the scheme administrator, the deadline for the scheme was July 2022. In our application to be the scheme administrator, we made it clear that we could not deliver that. Following that, we made representations to Government around how we saw the scheme going live. We identified that the period September to October 2023 was deliverable, although that contained a degree of risk and did not allow for a great deal of contingency. That is the timetable that we are now working to. The risk has not gone away, and the contingency has not grown.

On the issue of the planning that we are doing for contingency right through the programme, we are looking at what alternatives we can put in. It is worth stressing, particularly in looking at the operating side of the business, that we are building an infrastructure to cope with returns at 90 per cent. That will not be the case on day 1. When the scheme ramps up, there will be a fairly extensive period when the level of contingency that is built into the scale of the infrastructure, in addition to the lower volumes at start-up, will, to a degree, give us some cover. We cannot buy extra days, but we are continually applying more resource. On the IT side of the business, for example, we keep building up the resource, which means that, in effect, we have additional teams covering some elements. However, we have an immovable object in terms of the date that we need to hit.

I will make an additional point. To turn things round slightly, Mr Kerr, when you have such an immovable deadline, another programme technique is to start looking at your scope. Unashamedly, there are things that we perhaps set out to say that we would have in place for go live. We have had a long, hard look at what we do and do not need, and there are some things about which we have said, “Guess what? We don’t really need this for go live.” To take the pressure off a tight timeline, we have moved some things out. There were some reports that we might have liked to have for day 1, but we decided to bring them in shortly after go live, because there are more critical things that we need to ensure that we deliver right across the scheme.

We move on to questions from Mark Ruskell.

Maybe we could wind back a bit. There have been a lot of concerns among certain businesses. You have addressed some of those, but what do you see as the outstanding concerns?

This is a massive, complex project that touches thousands of businesses, so there are legitimate concerns. At no point do we dispute that those concerns exist. At the moment, a lot of concern is coming from smaller producers. We have 670 producers who have appointed us to be their scheme administrator, and 630 of those are small businesses. They are preparing and they have decided to use Circularity Scotland’s services to meet their obligations under the scheme. However, that does not mean that we are not listening to the other small producers and businesses that are out there. I am personally committed to the project that we are working on not damaging businesses. We will therefore continue to do everything that we can to support them.

Irene Steel can say more about what we are doing in practice to support small businesses.

I think that what we struggle with as a committee is understanding what the real issues are that have yet to be addressed. There are issues around communication, which you raised earlier, and there are perhaps issues that have already been addressed but have not been communicated. I am really interested to know which issues you are still working on.

11:15  

We are working with producers and retailers of all sizes. At the moment, we are running solution working groups for the end-to-end invoicing process. We are supportive, and we are collaborating with large and small retailers, wholesalers and producers to ensure that, across the supply chain, there is a commonality and an understanding of how the invoicing works when, for example, items are placed on market, when they go into a depot, when VAT is applied and when VAT is not applied.

That is an example of something that is not exactly within our remit, but it is absolutely in everybody’s interest, and we are happy to facilitate it. Clarity across the supply chain on the different stages of invoicing is one area that we have identified, along with many of our members, and we are working through that with them at the moment.

That is one area. Are there others?

In the first instance, Irene Steel is leading workshops with concerned businesses to ensure that we fully understand their issues. One of the big issues that was raised, particularly by small businesses, was about the cash-flow impacts of the scheme. We have put in place measures that are designed to address that, and we believe that they do so, but there are still concerns coming from small businesses. One of them is about invoicing. There is also the general level of readiness. Many small businesses do not have a great deal of resource to be ready for 16 August. There has been a lot of political discussion about that area recently, and we are still looking at measures that can address some of the concerns. Under the compliance approach that SEPA has put in place, in effect, if a small business is not ready, SEPA will look at what it is doing and whether its position is reasonable.

Looking at the scheme more broadly, given that there is a cost to producers, there are concerns about what it will cost them and about knowledge, visibility and understanding of that cost. To an extent, it comes back to the governance point that the convener raised. Our constitution sets out a number of things, but one is that all businesses are treated the same, so being a member does not give you a privilege. Everybody gets the same deal and the benefit of the level of investment that is being made behind Circularity Scotland.

Ultimately, it is a feature of the regulations that have been passed that the cost of running the scheme goes back to the producer, but our remit and our commitment is to be cost effective in running the scheme. That is why we sit in the point of conflict between the retailers, who want a higher fee, and the producers, for whom the fee is the greatest cost. We have to manage that conflict, which puts us in a pressure point situation, as we are trying to find a compromise.

A lot of the talk with producers around registration has been about understanding what liability they are signing up for. For every container that they put on the market, their liability is the cost of running the scheme divided by 2.5 billion to 3 billion. That is the extent of it. Today, obviously, we are working with forecast costs. We made a forecast last August that gave a relatively high producer fee, but we have subsequently been able to redesign the scheme and indicate a reduction of up to 40 per cent in the producer fee. We recognise that that is still a forecast, because we will know what the costs are only at the point when we go live. However, that reduction gives confidence in the abilities of the whole of the industry—we cannot manage it all ourselves, so I am talking about us in the middle and the industry—to manage the costs efficiently.

Furthermore, if we look at the actual cost of putting the scheme in place, as we sit here today, our costs are below budget. If we judge ourselves by the results that we are delivering, we are managing our costs effectively. We are working tirelessly—particularly Simon Jones’s and Irene Steel’s teams—to ensure that the infrastructure that we build can operate efficiently and then grow in efficiency as the scheme goes live.

However, I am afraid that, although producers can place trust in us to manage the scheme, the fact is that the cost of operating a deposit return scheme will become a cost of doing business for a producer of drinks. That is probably one of the most significant areas that many producers remain concerned about.

Okay. I want to focus on a couple of specific areas. What might the challenges be with the cut-over period, when scheme items and non-scheme items will be in circulation? Can you also offer some thoughts on how a grace period for small producers might work? It feels as if having items that are in the scheme and items that are outwith it would be complex.

I will pass the question about the cut-over period to Donald McCalman, who has been very involved in that work. The scheme has faced the challenge of the cut-over since the beginning. I will ask Donald to talk about it in more detail.

On a grace period for small producers, we really want to help small businesses with the transition to the deposit return scheme. Everything that we do with deposit return could have unforeseen and potentially unpredictable adverse consequences, and we have to be careful that small producers, who might be relieved at having a grace period, do not find that they are commercially disadvantaged.

Where a small producer supplies a big retailer, the big retailer has a lot of power and it wants things to be simple. I flagged that point when I was speaking to small producers. I said that I thought that they had to be careful about what they wished for with some of those elements and that, although they might be pleased that they did not have to address deposit return quickly, they might find that their business would be disadvantaged from a sales point of view.

I ask Donald to talk about how the cut-over will work.

When we ran the road shows and the conference, I was the lucky person who talked about cut-over. I refer you to my YouTube channel, which contains the full presentation. The cut-over process is long and complicated. I will not go into the full detail of it, but in essence it is the process of moving producers, retailers and everybody who is involved in the supply chain from the current way of operating to a world where the deposit return scheme is fully embedded and consumers are fully aware of purchasing items with the 20p deposit.

One of the unique elements of the scheme is that we will have types of containers that will be sold only in Scotland and we will continue to have containers that are sold across the UK. That situation presents challenges, and we are not shying away from that. One of the challenges of cut-over is to help producers, retailers and consumers to understand that there is a transition—that some products will not attract a deposit as they are ramped down and flushed through the supply chain, but that new products that are coming through will be deposit bearing and they will need to be identified separately.

The legislation has been reasonably well designed to try to accommodate that situation, and consumers can expect to see signs on shelves that say, “Retailers have an obligation to do this” or “These items are not in the scheme—they are gradually being sold through”. That will take a bit of time—two or three weeks—depending on the turnover of those goods. We understand that there is a strong requirement to support consumers, in particular, during that phase. We have already started to design that campaign, in conjunction with retailers and producers. We will manage that process carefully and get to the other side.

The reason for the ability to have both UK-wide and Scotland-specific containers is, again, to support smaller producers, given the costs that are associated with changing labels and changing the whole supply chain. The policy officers recognised that point from day 1.

We will deal with the matter. It is something a bit different for Scotland. Other schemes have danced around it, if you like. However, we have spent a lot of time working right across industry to develop a plan and we have published the guidance on that. We will manage it closely and help consumers get to the DRS operation once we are past the cut-over.

As you said, it is a transitionary period, which is par for the course with many other DRS schemes. However, if there was a grace period for small producers in the middle of that, what complexity would it cause? For example, if some small distilleries are in the scheme and some are not, a convenience store might have a complex shelf of regional whiskies, with some being in the scheme and some being out of it. How will that work? I appreciate Mr Harris’s point that larger retailers might just say, “Forget this—it’s too much”. What other issues might the grace period create for small producers and those in retail and wholesale?

We have touched on some of them. The cut-over period will be temporary. We know that there will be different ways of treating stock, but that will be for a defined period. Clearly, more design work will need to be done if the Government decides to go in that direction. A grace period for smaller producers could be interpreted as saying, “Your products will continue to be outside the scheme.”

The biggest challenge in all of that is to bring consumers along with it. One of the fundamental policy objectives is to change consumer behaviour, just as the behaviour of hundreds of millions of other consumers across the world has been changed. People will pay 20p, they will bring their empty container back and they will get their deposit back. If some containers or products are outside the scheme, there will be a different message, and we will have to be really careful to support consumers in that process.

As David Harris said, we should also ensure that there are no unintended consequences as far as small producers are concerned. Retail is a slick, streamlined, automated process and it does not like things that are a bit different. It is for retailers to decide what to do, but they would rather have consistency, which certainly supports the consumer side of things.

It is a challenge. If we end up going in that direction, we will work with industry to figure out a way to manage it, collectively, as best we can.

The map of return points is a very specific aspect of the scheme, but it is important, particularly for people in rural areas. When will we have certainty on what the map will look like? In response to Jackie Dunbar’s question, you spoke about the collection schedules, which will be hugely important to small rural stores that might not have much storage capacity. When will the map that shows where people can expect to be able to return their cans and bottles appear?

We will see a growing network. I do not expect all potential return points to be up and running and functioning as return points on 16 August; I expect to see an adequate network so that we, as consumers, can interact with the scheme effectively. Many stores will simply operate a manual point while they assess the situation, or they will come on stream as we go live.

We are primarily concerned with ensuring that there is enough provision for the consumer to be able to access the scheme. It is vital that everyone who is paying out the 20p deposit can return their container in their local area without being inconvenienced.

I ask Simon Jones to say a little more about the mapping and the work that is being done to build the network.

Obviously, we require people to register. We have a list of retailers that ranges from the small ones to the large. From a mapping perspective, whether you go for three retailers or the nine major retailers, before we get to the convenience guys, the spread is pretty much covered geographically. The small independents, particularly in rural areas, enhance that ability for people to return.

As you would expect, the central belt is very condensed with retailers, which causes us a logistical problem with the number of collections. In that regard, we would look for exemptions to be taken. However, when we map out the large retailers and then add in the small ones, we get a good geographic spread across Scotland. There will always be places where someone lives that do not have a store. In those instances, we need to consider how we can support those communities at some point in the future.

We have the benefit of learning a lot from the more than 50 other schemes that have already gone live. One of the more recent ones that went live was in Slovakia—I always get it confused with Slovenia. The scheme there went live on 1 January last year. Even now, the Slovakians are adding to their return point network as retailers decide that they want to be part of the scheme or, indeed, realise that a scheme is in place.

It is an ever-evolving process. Our registration capability will stay open permanently—

But—[Inaudible.]

Of course, retailers may decide to apply for an exemption. They may recognise that they will qualify for that because the return rate that they expected has not come to pass. There are a lot of unknowns, and we will not collectively understand the dynamics of where containers will come back until the scheme is live.

Some of the processes that you have spoken about are complicated and some are not. What support have you asked for from the Scottish Government and other agencies to try to help you to get through those processes?

11:30  

We are in constant dialogue with Government as well as the regulator about the operation of the scheme. The word “pragmatism” has been used a great deal. On what SEPA has issued in the past few weeks about its approach to regulating the scheme as it comes into being, the main issue is to ensure that, wherever possible—even at this stage—we are able to simplify the regulations and make the scheme more deliverable for industry. In many respects, common sense should be used in interpreting the regulations within the enforcement framework that SEPA has issued to ensure that businesses are able to make commonsense decisions about what works for them.

Small retailers, in particular, understand their market and their locality and know the right thing to do. We are keen to work with them as much as we can so that they operate return points in ways that work for them and they can give the service that they want to give. If it is not right for a small retailer to be a return point, we are keen to support them. That is why we welcomed the change on the exemptions.

On the practicalities, we are working for industry. Industry is paying for the scheme, so we are very much mobilising resources across organisations such as Biffa, Reverse Logistics Group and PwC, which are building IT systems to make sure that we will have all the capability that we can harness. I think that the IT build is happening on three continents to make sure that we throw all the right resources at that.

We are very much working with Government. I am happy to talk in those terms today. The more common sense we can use in interpreting the implementation of the regulations, the better. We should let businesspeople make the right decisions for their businesses.

I go back to the point about having an adequate return network. The market will decide that for us. The stores know what is needed. In rural areas in particular, they are there to provide a service, and they understand what they need. We simply want to support them with a service that enables them to do that.

Is Circularity Scotland concerned that, following the passing of the original deadline for registration, a significant number of smaller producers that currently market products in Scotland still have not registered? If they do not do so by the launch date of 16 August, will they still be able to sell in Scotland?

That is where the updated guidance from SEPA is very important. If you have a small distillery with a shop, you sell all your products in that shop and, on 16 August, which is day 1 of the scheme, you are not operating a deposit return scheme, what is the plan? Are you committed to becoming compliant with the scheme? What is your plan for doing so?

On what is difficult for a small business, the businesses that we are dealing with are not used to being regulated by SEPA. If people have been regulated by SEPA for the past 20 years, they can read the documents and understand them better. Technically, businesses have to be registered with the scheme administrator or directly with SEPA on 16 August to sell in Scotland. A document has been set out that you can interpret—I use that word carefully, because the document gives guidance about having a plan in place.

I said that I would not speak on behalf of the regulator. SEPA is very aware that a lot of organisations that it is about to deal with have never dealt with it before. Recently, SEPA published guidance on how it would regularly support and ultimately enforce. As David Harris said, the pragmatic view that it is taking—again, we are speaking on its behalf; you may wish to have it directly in front of you at some point—is that, if people are committed to complying but are struggling for whatever reason, it will support them. We have interpreted that as meaning that people have to aim for compliance with regard to the dates, but if there are genuine reasons why they have not been able to comply, SEPA will continue to support them so that they can be compliant. We will keep open our registration window for as long as it takes.

There might be genuine reasons why a company has not been able to register in time. As far as my interpretation is concerned, there is no shutter. If there are requirements that need to be supported by SEPA, the organisation can be helped by it to get through, register and continue to trade. Nobody wants to close down trade for those organisations.

I am slightly confused. Will you clarify the position so that I understand it? SEPA enforces regulations that the Parliament put in place. Are you saying that SEPA does not have to abide by those regulations? Can it apply them as it sees fit, if it thinks that an organisation is moving in the general direction that is wanted? That is not my understanding of how the law works, but is that what you are saying? I am interested in hearing you repeat the point.

I say with respect that that is not what I said. SEPA regulates under the laws that the Parliament has laid down, but its approach to regulation is not black and white. Like a lot of regulators, it has a desire to support organisations in becoming compliant with regulations. Believe you me, SEPA is clear that it will absolutely stick to the letter of the regulations, but it has a pragmatic role in supporting organisations to get to compliance.

Businesses need time to adjust to the change, and SEPA’s pragmatic view is that, if an organisation intends to comply with the regulations but is struggling for whatever legitimate reason, SEPA will support it. If the people in a business say that they will ignore and try to find ways round the regulations, they will have a very different conversation with the regulator.

I make it clear that SEPA interprets the regulations as laid down and approved by the good people in the Parliament, but it supports businesses to get to compliance, which is what everybody wants.

Thank you for clarifying that. I am sorry for treading on Liam Kerr’s toes.

I will ask a question on another point shortly but, to be absolutely clear, I will reflect back what Donald McCalman just said. If I had a business that was not registered by 16 August, I might not be able to sell my products in Scotland. Is that the case? I ask you to answer that when you take my next question.

Mark Ruskell asked interesting questions about the support package of measures that has been put in place to help smaller producers to participate in the DRS. Notwithstanding those support measures, do you project that small, perhaps artisan, businesses will go out of business as a result of the scheme, perhaps because of the obligations that it places on them, which the deputy convener detailed?

On compliance by 16 August, as the regulations stand, a business must be registered with SEPA or the scheme administrator on 16 August to be able to sell in Scotland. Donald McCalman described the scope, in terms of how the regulations are enforced, for supporting businesses that are not fully compliant on 16 August to become so.

We will have the opportunity to continue to register businesses. As an organisation, we are committed to working with businesses to address what concerns them about registering for and operating the deposit return scheme. That links into the question whether those businesses will still be here, given the complexity of bringing the scheme to life.

I will ask Irene Steel to come in. We are spending time with organisations that represent small businesses so that we understand what issues have not been addressed that we can fix and find solutions for. That is very much about being practical, finding the problems and addressing them.

I say at the outset that our intention is that no businesses will suffer financial harm from the scheme. As David Harris said, the scheme has a cost, which all producers contribute to, because the scheme represents a change in how we recycle materials.

The objective of the whole board and executive team in Circularity Scotland is to support all businesses through this. As a result, we have been holding solution-based workshops with the associations that represent smaller producers. The dialogue has been going on for some time, but we have increased the intensity of our discussions and we are coming up with the solutions that are required. To give an example, although no commitment has been given yet, we are exploring having a threshold of smaller volumes for wine importers, which would be a pragmatic and commonsense measure that we could adopt for a short time.

We are absolutely committed to working with such organisations to get solutions that will help businesses to navigate their way through the change. The ideal result will be that no businesses are adversely affected by the scheme’s implementation.

I will come back in later.

Okay, thanks. I come to Collette Stevenson.

I have several questions. Recently, I was invited along to a small distillery in my constituency that produces whisky and gin, predominantly, and which has a variety of concerns. Staff have attended the roadshow, but they felt more confused after it. A lot of their questions were not answered.

I would like to touch on some of the things that the witnesses have spoken about. The distillery’s bottles, which are all wrapped, are exquisite; they are absolutely beautiful—in fact, on what has been said about the circular economy and single use, when I visited the distillery, bottles were being used as lampshades and candle holders. The big concern for the distillery, as a small producer, is that it will incur costs for each bottle, although the likelihood is that those items will not be brought back. Some suppliers just fill their bottles back up, rather than recycling them. The distillery also pointed out to me that, because its bottle is so beautiful, the likelihood is that it will not become an item that litters our streets. Perhaps you could touch on that.

I would like to take you up on your offer to visit that producer to answer some of its questions. It also asked about the import label. The producer has consulted HM Revenue and Customs, which said that the import label is actually about fraud. Further, because the bottles are wrapped, what would happen with relabelling? Can you come up with solutions there? I would be keen to hear your comments on that.

You have just outlined a compelling case of a producer that has tiny volumes, for which, potentially, we could seek a route to get it exempted. We are keen to explore such situations. Notwithstanding that, because that route does not exist today, what we are we doing, primarily, is looking at a sticky-labelling solution, in effect, to provide a low-admin, practical option for low-volume producers. We are talking about producers of fewer than 25,000 units a year, so they are not in the handmade category—the volume is much higher. I ask Simon Jones to comment.

A lot of small producers that do not invest in labels also do not barcode, particularly the small whisky and gin guys. People do not want a barcode on the bottle, either, particularly if it is an attractive one, so we are in the process of finalising a solution that will allow a producer to order a GS1-compliant barcode. We will provide labels that the producer can provide to the consumer with the bottle, so that, should the consumer wish to claim their 20p back, they can apply the label to the bottle and take it to a machine or a manual return point to get their money back. However, if they choose not to return the bottle because they want to turn it into a lampshade, or they do not want to take an extra sticker off, that is their prerogative. We absolutely want to make sure that the small producers do not have to invest in heavily labelling their bottle or changing its dynamic; we want to give them a simple solution that allows them to offer the consumer their 20p back.

I will quickly answer the two other questions that Collette Stevenson asked. On consumers keeping the bottles, a scheme administrator has been appointed, and responsibility for achieving 90 per cent passes over to the scheme administrator in totality. Therefore, the distillery would not have to worry about having a 90 per cent return rate; that would be taken care of by us. On the point about refillables, if the company is marketing the bottles as a refillable product, which is a very environmentally friendly approach, those are out of scope of the scheme and it would not need to take part.

As far as I am aware, the company is being told that it needs to take part in, and comply with, the scheme.

It can consult SEPA, which ultimately determines whether companies are within the scheme’s scope. It has options.

11:45  

I also want to ask about how the fee structure for producers has been set up. Did you consider how costs would be distributed across businesses? Did you consider the environmental impacts of different materials? Are producers still raising concerns about the fee structure following the changes that have been made to the support package?

In our dialogue with producers, we had a lot of adverse feedback in August about the original fees, which were quite high and reflected a set of estimates at the time. Following the revisions that we made in November, the feedback pretty much across the industry has been that, although producers would, of course, prefer lower fees, they are now at a realistic and reasonable level.

We have given a clear message about our commitment to developing efficiency. I would like the fees to come down over time, as we become more efficient. In an inflationary world, that is obviously a challenge, but people should be clear that we have an absolute commitment to keep improving the scheme.

Having taken feedback from the industry, we have tried to reflect the different operating costs for different materials. Glass is more expensive to handle. We do not have a choice about whether glass is included in the scheme. The regulations require its inclusion, so we have to collect it. It costs more to handle glass, and that is reflected in the fee. We have reflected the differential costs of operating with various materials, and we have also reflected the different values of materials. When they are baled, aluminium cans are extremely valuable; glass is not. That is another feature of the fees.

I stress that the fee structure has been set up to be flat, in effect, on a per-container basis. If we ignore any fixed costs that a producer might have in relation to systems or anything that their company needs to do, we can see that one of the benefits is open access. You do not have to be a member or a major producer that can provide funding to sign up with us. We are completely self-funded. All companies will pay the same price, regardless of whether they are the smallest or the largest drinks company in the world. The big guys will share their buying power with everybody across the spectrum.

Right now, we are relying on a lot of estimates and assumptions about what will happen when the scheme goes live. How will the costs build up? What containers will be placed on the market? Will there be changes in the nature of containers placed on the market as a result of the scheme?

When the scheme goes live, we will become data rich very quickly, which will enable us to assess the drivers of costs and whether we have the most appropriate fee structure. We will have the scope to evolve the structure, with an eye to the cost drivers and ensuring that the scheme is fair, with producers paying a fair fee for their share of the costs that are created.

I have a final question. There have been various reports in the media, including on social media, about the potential for cross-border fraud. What have you done to prepare for that? To what extent do you think that such fraud will occur?

A function of the scheme is that it is being implemented in Scotland, which has an open border with England. We do not have the power to compel producers to label or differentiate Scottish market products. We expect a great many of the products placed on the market in Scotland to be treated as such. If I could change one thing today, I would give us the power to enforce that labelling, but we do not have that power—that is the nature of the world that we live in.

However, as you would expect, a great deal is being done to address and manage that risk. I will ask Irene Steel to talk about that. We cannot eliminate the risk, but we can do things to manage it.

I will pause that discussion, because I think that we will delve into that issue slightly later. I am trying not to tread on anyone’s toes.

I will bring in Monica Lennon.

Thank you, convener, and good morning, panel. It has been quite an interesting session so far. I will probably pick up on Collette Stevenson’s questions about small producers because that is where my interest is today. However, I was quite struck by your comment at the start that we have more than 100 years of relevant experience in front of us today. On the one hand, that is reassuring, but many small producers are still not getting access to the answers that they need, so I am hoping that we can make some progress on that today.

Sticking with small producers, I think that Collette and I have been speaking to the same local businesses, but they are not alone. The example that I have in mind is a small producer who did not sign up before the deadline. They have not signed up yet. They attended one of your in-person roadshows, but they left it feeling very frustrated. It seems that other small producers share these concerns. I think that we all want a more circular economy, but we do not want people going round and round in circles trying to get very basic answers and being passed between Circularity Scotland, SEPA, trading standards and, of course, the minister. The business that I am thinking of said that the minister did not reply to them, but I think that David Harris said that the business that Collette Stevenson described might actually be exempt, because it operates on such a small scale at the moment and it is trying to heavily promote refill and reuse. If it is exempt, who would tell it that, and why has it not been able to get that information so far from Circularity Scotland, SEPA or the Government?

There is currently no exemption. However, that is one of the requests that has come forward in the workshops that we have been holding with small producer representatives, and we are supportive of it.

We cannot repeat this enough: if you are speaking to small producers or to any business that has concerns, please get them to call us. A huge amount of misinformation or poor interpretation of either our role or the regulations is fed back to us constantly, particularly through the website.

If somebody engages with us to support them, we do not seek to pass them off to SEPA or send them away to read the regulations. We have a customer service team who have been doing this for probably six months now, and they have built up a huge amount of knowledge in supporting the hundreds of small businesses that have either signed up to the scheme or are still talking to us about it. Obviously, it concerns me if producers who have attended workshops left feeling concerned that they did not get answers, because we are committed to addressing their questions.

The first thing is to make sure that people—

Can I just interrupt you there? First, I thank your customer service team, which clearly has a busy and challenging job to do.

The small businesses that we are talking about are heavily invested in their local communities, in their workforces and in securing people’s jobs and growing their businesses; they are also thinking about net zero and sustainability. They are not shy about picking up the phone to or emailing MSPs and asking people to come out. How many times do they have to phone and ask the question before they get an answer? Also, is it right to pass them to SEPA? Is there an opportunity to get SEPA, Circularity Scotland and others involved in the same room, given that the problem seems to be that people are getting passed from pillar to post?

If that is happening, please do not put them in touch with customer service—put them in touch with me, so that I can get to the bottom of the situation.

This is a big change. A lot of these businesses have never been regulated and, as you said, they are committed to their community. Many of them are already there, in terms of being green and meeting their responsibilities. The regulations have come along and they are caught by them. We did not catch them, but we are the one organisation that has been created to provide an answer.

All I would say is that if people who have spoken to us are not happy and are approaching you, please contact me directly, because I want to speak to them and get to the bottom the situation. We have grown this company from nothing to 50 people in six months, so if something is not working, I want to know about it so that we can fix it.

I am sure that you have made a very genuine offer, but, from what you have said, you have a lot of operational stuff to roll out, and I wonder whether every single problem and query having to be channelled to you, as chief executive, to get an answer is a good way to do business. I do not ask that to be cheeky in any way.

If that is where we are at right now and we have gone beyond the original sign-up date, are you feeding that back to ministers and discussing it with the minister, Lorna Slater? You have picked up that there should perhaps be a case for exemption. You are correct that that is not in the regulations right now. Are you feeding that back to the Government?

We are constantly in dialogue with the Government about the evolution of the scheme. Donald McCalman talked earlier about managing the scope of the scheme. As you would expect, anything that we can do to make it more manageable or implementable, we are in dialogue about. We are talking not only to producers but to everybody who can have a say in sorting it.

As I have said, we started this business from nothing, and we have had to build it very quickly. I have had reports many times that people cannot speak to us to get answers, but we have a customer relationship management system, so I can go back and check what discussions have taken place. We have had a lot of incidents in which huge amounts of time have been spent. I am not suggesting that those are the businesses that you are talking to, but people might not like our answers. Much of it is that people do not want to operate a deposit return scheme, but we cannot make it go away. We have spoken to people who have not been happy with where they have got to, so they have written to their MSP or MP, who has contacted us.

We need to know. We have a great team of people who are all learning fast in a new business, but only by knowing where there is a deficiency will we be able to go and fix it. That is why, if there is a problem, I urge people to report it to me so that I can talk to the team and deal with that incident. Every time that I get a letter from an MP talking about a business, the first thing that I do is go to customer service and say, “Right, have these people spoken to us? What have we discussed? Where was it left?” to try to ensure that we are closing down problems as they arise.

What are you doing to be more open and transparent, because this is about confidence and trust and people being able to get information and clarity? Donald McCalman mentioned a YouTube video; I am sure that there are lots of resources out there. However, when you capture those inquiries, does it all go on your website and is that information being shared so that people do not have to keep coming to you with bespoke inquiries? You might have done that already.

Donald, do you want to pick up on the comms point?

There are a couple of things in there.

Like any organisation responding to queries, when we see regular types of queries, we update our website. Some of the queries are related to the legislation. SEPA updates its website. As I said before, we are organising, collaborating on and trying to co-ordinate all the various communications that happen to ensure that there is a growing body of support and evidence. We are producing guidance documents more and more frequently—I think that another two or three have gone live in the past few days.

There is a group that we have not mentioned yet, which, again, relates to the gateway reviews. We genuinely do not have the answers to some of the questions that are asked of our team. For example, we do not know the detailed approach for how VAT will be addressed, but we are working very closely with the Scottish Government, which is on point to address that. There is therefore an organisation or group that was set up by and is chaired by the Government that includes representatives of retailers, producers, Circularity Scotland, SEPA and Zero Waste Scotland.

It is the system-wide assurance group, and it is the body that ensures that all the hard problems and questions, many of which sit outside our remit and scope, are logged and dealt with. Some of those sit with the Government to address, some sit with SEPA and some sit with Zero Waste Scotland, which is why there are representatives on the group of all the organisations that are affected by the DRS. It is another forum that was set up by and that is chaired by the Government in recognition of the fact that there are a lot of different moving parts, not all of which sit with us or SEPA, for example. The Government has therefore put itself in the middle of that group and is using it as a forum to support the resolution of questions.

I will return to the point about those beautiful bottles that can be reused for lamps, candles and so on. I think that we have both spoken to the same business, which is concerned that the bottles have to be returned for recycling—they have to be smashed. Now that you have a bit more knowledge about that, and given that the Parliament will be considering a circular economy bill, do you think that there needs to be more flexibility around the type of situation that we have described?

12:00  

We are collaborating and working really closely with SEPA, the Scottish Government and the organisations that represent the small businesses that are involved. We are coming up with solutions to the specific issues that they are raising and working out how we can bring those solutions to life within the current legislation, perhaps over a phased period.

Since my time in Circularity Scotland, small producers have been a priority and we have dedicated an enormous amount of resource to working on the answers that they are looking for. It is about working with governance. Given the legislation as it is, we need to on board those small producers. If there are specific issues, such as those that were raised by your constituent, we can investigate them, come up with a pragmatic solution and take that to the Government as a suggestion from the trade bodies, SEPA and Circularity Scotland.

That is very helpful. Thank you.

I have been getting dirty looks from some people around the table who want to ask more questions. I will repeat what I said—I am going to let the session run on a wee bit so that the members who are not part of the committee can ask their questions. They do not have to worry—I will let them in in due course.

Before I bring in Liam Kerr to ask his next questions, I have a question for David Harris, which might be of help. David, you talked about an exemption scheme and the ability to exempt small businesses. Would it be helpful to tell us when those guidelines need to be in place in order to make it work? This month? Next month?

Time is not on our side. As you will have gathered, we are working at an incredible pace and are throwing a lot of resource at getting to the bottom of what can be done to address the concerns of those small businesses. We have been through a month during which the level of political uncertainty has made life difficult. Many industries saw the narrative that was out there and slowed down, but we have kept pushing hard and have not sat back. Given that narrative, the sooner that decisions are made and we can deal with certainty and plan accordingly, the better.

In simple terms—and I am sure that whoever needs to be watching the committee meeting will be watching it—you are saying that you need the answer now.

I would like to go back to collections and space, which is an issue that Jackie Dunbar asked about earlier. What do you advise smaller or rural retailers to do if particularly large deposits come back or there is a local event and their space gets overfilled? What is the contingency plan if a more frequent uplift is needed than that of the usual collection schedule? What should those retailers do?

There is an opportunity for on-demand collection. The retailer should contact us, and we will arrange an on-demand collection. If the retailer knows about the event, they can get in touch with us in advance. For example, we are already working with the guys that organise the Edinburgh fringe to ensure that there is suitable collection available for the fringe in August. The more notice that people can give us of events, the more that we will be able to plan and come up with a solution. It might be that we can get a mobile reverse vending machine in place for that event, for example. We will aim to work with them to support that.

If there are more returns than expected or someone turns up to a rural community with a van full of bottles, under the legislation, the retailer can say, “No, that is too much”, and explain that it is not within their scope to take that much back. I appreciate that that might be difficult, but they have the right to do that.

We will do everything that we can to support retailers with collections, whether by offering them ad hoc or by ensuring that the frequency is sufficient. We also understand that there will be an element of seasonality in certain rural areas.

Perhaps when you respond to my next question, you will confirm whether there would be an extra cost to the retailer for an ad hoc pick-up.

David Harris, I saw recently that the collections have a value. If that is right, is the retailer liable if the products are stolen? If so, are there insurance products available to cover the risk?

The payment of the deposit back to the retailer is based on the items that are collected and counted. Therefore, there is an issue for security if you have a small store, because you cannot just leave it in the car park. We are not an insurance provider, but I have heard that there is some challenge around the additional risk being covered by insurance. However, to be clear, from where we are sitting, we need to collect the material to pay the reimbursement of the deposit, so the responsibility for the security of returns on site rests with the retailer.

Therefore, the risk is on the retailer. Simon Jones, I will put the question to you, and you can come back to me on the cost of ad hoc collections. You have obviously signed a deal with Biffa, which will collect the products. What key performance indicators has CSL put on Biffa to protect businesses from poor service, if that were to happen, and from any impacts on regular collections happening on schedule, such as strikes? Given this committee’s remit, what obligation is there on Biffa to be net zero?

I will reply to your previous question first. All collections are free. As part of the producer pays principle, the producer funds the scheme, in effect, so there are no charges for any collections, whether that is for hospitality or retail. An ad hoc collection is free of charge as per all other collections.

With regard to Biffa being net zero, the technology and infrastructure right now is not where we would want it to be in order to run electric and hydrogen vehicles. It is very expensive, and it is not the best solution right now. We have invested in vehicles—top-loader vehicles for glass and primarily panel vans for small collections—which are much more efficient; they will be Euro 6 engines. We are working to ensure that, when we come round to the replacement of those vehicles, we will get to a position of asking, “Are we ready for the infrastructure for electric and hydrogen vehicles and can we upgrade?”.

To get to net zero, the solution is predicated on using as much existing mileage as possible. We are also using retailers for backhaul. Therefore, any empty running that takes place between retail outlets and main recycling hubs will be done primarily by retailers, and the rest will be picked up by Biffa. However, it is tasked with moving towards being carbon neutral.

With regard to KPIs, we will be managing the system in the day. The current collection frequency is based on in-day collections, taking into account retailers’ operating hours and any collection restrictions, because we are mindful that, particularly in cities, you cannot just put a bin on the street. Biffa will be managed on a daily, weekly and monthly basis, to ensure that it is meeting KPIs. Any concerns that we have should be raised directly with Circularity Scotland, and we will come back and challenge Biffa in those meetings.

Should strike planning ever be a concern, we would work with Biffa to deal with that. We know from our recruitment process that Biffa and the DRS division that has been created are not unionised environments, so we do not expect that to be an issue, but you never know.

There has been some bad press for Biffa in the past. The DRS division is a completely separate division that has been created to deliver the deposit return scheme.

How has the Scottish Government kept you updated or informed in relation to whether a United Kingdom Internal Market Act 2020 exclusion will be granted? Have you sought or received any guidance from the Scottish Government or sought independent legal advice on how to prepare for different scenarios? Bearing in mind the fact that hundreds of millions of pounds of private company investment has been put into the scheme to go live on 16 August, is there a risk of legal action for compensation from any of those private companies, or whoever might be concerned, in relation to a refusal of that exclusion?

I guess that our knowledge of the internal market situation is no different to what is in the public domain. Obviously, when we speak to Government, we ask for updates on the situation, in view of what is likely to happen. Together with our partners, we seek any information that we can get on where that might go. I am not sitting here today thinking that I know anything that is not in the public domain. When the issue came to light, the first thing that I did was call our lawyers to explain precisely what the situation is, as you would imagine. My understanding is therefore that the regulations are good, robust and legally enforceable in Scotland, but that there would be a challenge if we tried to enforce them with a business south of the border, which is why the exemption is required.

When we looked at how we expect the situation to play out, the legal advice was that the risk of it not being in place was low. However, I recognise that the scheme has become politicised, which increases the level of risk. If it goes live on 16 August, there might be some exceptions, but we expect that the majority of producers will operate the scheme because the regulations will be in force in Scotland. They recognise their responsibilities and will act in a responsible way, on the understanding that the exemption will be achieved at a later point.

There will be detailed planning for that and for whether the producers, retailers and our partner organisations that have made investments will come back to recover funds. If the scheme does not go live, people will be looking to recover an awful lot of investments.

You said that you want to know where there are deficiencies. The Scottish Grocers’ Federation has written to the committee in the past week on many outstanding issues, which you must know about because it will have told you. Why does it still have those concerns? Can they be resolved by 16 August?

Retail handling fees have gone from being cost neutral to actual costs incurred. Reimbursement is no longer being made every seven days; it has been moved to being made monthly, which might affect cash flow. Collections might not be made every day, and there are obviously concerns about that. The planning regulations for reverse vending machines are benefiting supermarkets, but there are difficulties with more localised collection. There are also concerns about the terms and conditions when signing up being an open chequebook and people being expected to sign up to the scheme when all those other concerns are still outstanding.

Why is the Scottish Grocers’ Federation still writing to the committee to express its concerns that those issues are outstanding? How do you intend to resolve them in time?

A full but short answer would be appreciated, David.

We continue to work through all the issues. We have lists of issues coming through from various organisations. At the stage that we are at in building the scheme, of course there are still issues to be resolved.

I am happy to discuss the return handling fee in more detail. Our members set out an agreed method for that, and the Scottish Grocers’ Federation is one of those members that signed our constitution, which instructs us on the process that must be used to calculate a fee that aims to put the retailer in a cost-neutral position that is based on the costs that are to be recovered in the regulations. That has been done using an extensive process involving consultation with retailers.

On payment terms, the majority of return points will be paid seven days after we count the returns. When we issued the agreement, which is the document that sits between the retailer and the scheme administrator, we set out that, for automatic return points, we will seek payment 30 days after return. The return immediately triggers that payment 30 days later. It is not a difference between seven and 30 days; it is collection, then counting, plus seven days to 30. That is because the vast majority of automatic return points will be operated by the biggest retailers. They have long payment terms with their suppliers and will therefore get a cash-flow benefit as the scheme goes live.

12:15  

We recognise that a number of small retailers are investing in those machines. We have spoken to trade associations and are working our way through them—I am speaking to one currently, but I will not say which one—to ensure that we are able to address the concerns of the smaller retailers that might be impacted by the measure.

One of our challenges is that we are, in effect, conducting a commercial negotiation between some of the biggest companies in the world under public scrutiny. Therefore, we are having to work on issuing draft contracts and putting the terms out there to get in a position with very large companies that does not exploit the small producers that are feeding into the system. We are having to find compromises. We have seen with small producers that we can compromise. We will do the same, where possible, if there are issues with convenience retailers, and we will work through the issues that are on that list as best we can.

I now come to members who are not on the committee. I will start with Maurice Golden, then go to Fergus Ewing and Brian Whittle.

I will follow up some of Monica Lennon’s lines of questioning. I think that Mr Harris has mentioned twice that Circularity Scotland is in constant dialogue with Government. I have some questions about whether topics have been discussed to which I simply ask for a yes or no response—I will not ask you for any further details around what was discussed.

As Mr Jones has alluded to, Biffa has bought almost 200 vehicles to transport the deposit return containers. Those are not net zero; they are conventional petrol and diesel vehicles that are pumping out emissions. My simple question is: has the minister raised that issue with Circularity Scotland?

No.

Thank you. We have seen reports on Biffa’s environmental record. It was fined £1.5 million for illegally dumping waste abroad, with a judge describing its actions as “reckless, bordering on deliberate.” Has the minister raised any questions with Circularity Scotland on Biffa’s environmental record?

We have discussed Biffa at length. I do not recall whether that specific issue has been raised.

We selected Biffa through an extensive tendering process. We looked at its ability to manage the collections and the operating system for the deposit return scheme in Scotland. We also looked at its ability to provide the investment that we required, as a shell company at the time, to meet the obligations that we had been given.

At the end of that process, which included a vast range of companies, large and small, we reached the conclusion that, in Biffa, we have the right partner. We were aware of the issues that had arisen. To be clear, Biffa will have no control over where materials are going; it is providing a logistical operation.

My intention was not to raise further issues about Biffa. However, as you have raised the tendering process, I will ask about waste collections. Is it not the case that the way in which the tendering process was run meant that only a large multinational business could feasibly win the bid?

We looked at a range of operations; companies of a broad range of sizes came forward.

To be perfectly clear, when we got to the end of the process, we selected Biffa because it had the resources to put the investments in place. That was particularly driven by the operating centres that the new facilities need to have put in place. Within the contract, Biffa is obliged to use existing movements as much as possible—that is, to contract with existing local providers.

I am happy to talk in more detail about the work that we are doing to make sure that that takes place. There is more to this than just appointing one contractor. It is about having a contractor to run the system and, in doing that, it must use what is already there as much as possible.

Maurice, I have taken you as far as I can on that. I need to go to Fergus Ewing for his questions.

One of the main concerns about the DRS is that the public will have to pay more than 20p extra for individual beverage items. Mr Harris, can you provide any assurance to the public, who will be increasingly concerned about that? I refer especially to those who are elderly, infirm and do not have access to a car and, therefore, will have to hulk heavy, bulky goods back to a shop that may be some distance away from their home.

Can you give assurance about what level of price inflation there will be above the 20p? Some industry figures tell me that it will be 40p, others that it will be around 30p and some that it will be even more than 40p. Can you give any assurance about what the average increase will be above the 20p?

The only thing that we have any control over is the fee that we charge the producers. Whether the producer passes that to their customers is the producer’s decision. Likewise, whether the retailer applies a mark-up to that fee is entirely a decision for the retailer.

Irene, do you want to come in?

Absolutely—

Sorry, I will let Fergus Ewing come back in on that. Somebody has to pay, I guess.

Indeed. I will quote from an interview in The Herald with your good self, Mr Harris, in which, if you are accurately quoted, you said:

“If we take into account the fact that there are costs for operating this system, and you anticipate that the producers will seek to pass that on, it will find its way down the chain.”

You have already admitted that there will be cost inflation above the 20p. I am saying that, as we move towards the scheme coming into effect—if it does come into effect—members of the public, particularly the poorest, will be increasingly worried about the impact that it will have in the middle of the worst cost of living crisis in living memory.

The comment in The Herald was in response to the question whether, if a cost was applied across an entire market, I would expect that a producer would seek to recover it from their customer, be that a wholesaler or retailer. The answer is that I would. It is not my decision so I cannot give any guarantees on that but, if you apply a cost increase universally across the market, common sense says that that is what will happen.

Okay—I will move on. Time is short and I want to cover three brief but important issues.

The British Glass federation advised that the scheme would result in a diminution—a reduction—in the amount of glass recycling into new bottles and jars. The reason for that is that there is no remelt target and that Biffa has procured and will use crushing machines, which means that the glass will be crushed into fragments so small that they cannot be recycled into bottles or glass. That means that the carbon saving that comes from recycling into bottles, which is 580kg per tonne, will be reduced to around 4.5kg per tonne, which is a reduction in carbon savings of more than 99 per cent.

Given that, back in 2017, Zero Waste Scotland estimated glass recycling into bottles and jars as being between 70 per cent and 90 per cent, is there not a serious concern? British Glass’s advice was taken by the UK Government, which then exempted glass from its proposed DRS. You do not set the policy, Mr Harris—I understand that—but you will operate it. Is there not a real concern that the scheme will result in less recycling of glass, not more?

As you kindly said, we did not set the policy to include glass. I ask Simon Jones to talk about what we are doing on managing glass and ensuring that recycling takes place.

Biffa has not purchased crushing machines for glass. We expect natural breakage. The people who might use crushers are in hospitality and we are engaging with the hospitality industry to understand how we can adapt those machines, which are primarily for space, to ensure that fragments are larger than 10mm—or no smaller than 10mm.

We are working with glass reprocessors in Scotland to understand what size they can realistically process back into cullet and we are working to understand what they do with anything that does not make it into back into cullet. I need to check and will write back to the committee, but we are talking about 98 per cent being likely to be recycled with 2 per cent potentially going into aggregate.

It would be helpful if you would write to the committee to answer that question. I will get the clerks to ensure that it is relayed to you, as it was on the record.

Mr Ewing, you were always difficult to keep to time when you were sitting at the far end of the table. I urge you to ask only one further question; otherwise, you will upset Mr Whittle, who is sat right next to you.

I would not want to do that, convener.

I will ask my final question. Plainly, small companies throughout Scotland, whether producers, retailers or in the waste management sector, are now worried that their businesses will be seriously adversely affected. Some will have to close; some will issue redundancy notices—which some are already planning to do—and close depots.

Mr Harris, they have recently read reports that you have a salary of £300,000. That is a matter of public concern, as you said at the beginning. Do you recognise that anger and concern? Can you clarify for me whether £300,000 is the total remuneration or whether there are pensions and other benefits above that, and is it correct that you work part time because you have very substantial other commercial interests, to which, presumably, you have to devote some time? Will you answer those questions and perhaps give an indication about how many hours per week you devote to the job of CEO of Circularity Scotland at a salary of £300,000?

I confirm that that is my salary. I confirm that I work full time in the business. At the moment, I work in the region of 80 hours a week on Circularity Scotland.

I was asked to do the job. Industry approached me and asked me to take the job on. The board set my pay. It made the offer and I accepted it, partly because I have had to recruit other people to run my one other business so that I can devote to this one the time that is needed. I was asked by industry to do the job, and I gave my word that I would do it and deliver what was asked of me. That is why I am devoting so much time to it and why I am allowing others to take care of the other business that I own.

I will just add that, on the back of our membership body and the way in which our corporate governance is organised, you can imagine that, because of the level of professionalism of those member bodies, we have a similar level of governance in our own business. The appointment and remuneration process is approved by the board and through the remuneration committee, and it is put to members for their approval. All of that is done through a commercial lens.

Before we move on to the next question, I want to clarify that I did not mishear something. I think that you said that you work roughly 80 hours a week, but did you answer Mr Ewing’s questions about any other payments, such as pensions? Sorry, I may have misheard.

I receive a pension contribution at the same level as every other employee of the company.

Okay.

Good morning. It is good to see you again, Mr Harris. I was considering our conversation of last week and the implications of what you had to say. I am looking at it practically. Since then, I happened to meet up with constituents of mine—an elderly couple who get their groceries delivered by the supermarket. They already recycle. They have a glass bin, a plastics bin, a general waste bin and a garden waste bin. Those are collected by the council. They will be unable to return the items that will be subject to a 20p charge, which will no longer be collected by the council. Obviously, they will be out of pocket.

Given that, as you said, you will be ramping things up from the start, a significant number of people will be in a similar situation and unable to take part in the deposit return scheme. I recognise your role as an administrator, but is it not the case that the practical realities of the scheme are such that people in that situation—which includes those who, as my colleague Mr Ewing said, are probably among the poorest in society—will have to pay for the scheme, as it ends up? They are the last people in the line.

The issue of how to deal with home deliveries has been one of the problems of implementing the regulations. I ask Donald McCalman to talk about where we sit at the moment, when it comes to that situation.

Certainly. The legislation, as passed by Parliament, made it very clear that online retailers who deliver remotely have an obligation to go to consumers’ houses and collect those empty containers. I think that it is the first scheme that has attempted to do that at scale; one or two other schemes do it on a partial basis.

It is a new piece of challenging legislation, and that obligation sits fairly and squarely with retailers. That point has been known and laid out for about two and a half or three years. Retailers have spent a lot of time trying to figure out how to meet that obligation and they have been unsuccessful, which was another reason why the minister recently announced an intention to modify the legislation. I think that the Government will delay that particular part of the implementation.

The Government is still directly engaged with retailers to figure out how some of that functionality and capability can be delivered, and retailers are still working out how to deliver that obligation, which entirely sits with them. Our obligation is to go to the retailers’ delivery depots and collect the empty containers from there. We are working as far as we can to support that design effort, but retailers have yet to deliver the design solution.

12:30  

Brian, I was going to let you ask one further question, because everyone else had two.

Thank you, convener. What we are discussing here are the practicalities of the scheme—we are looking at people’s ability to get their deposits back and to recycle product. In that circumstance, neither of those things would have happened.

I was hoping to get answers on a huge number of questions, one of which was whether you get a refund of your 20p or a credit against your shopping, because the refund might be critical at certain stages to certain people instead of a credit against the shopping. Those questions are still to be answered. The committee will have to consider what further work it wants to do on the matter, which we will do briefly in private session.

I thank the panel, therefore, for the evidence that it has given to the committee and ask witnesses to leave quickly so that we can consider what has been said.

12:32 Meeting continued in private until 12:36.