Autumn Budget 2025: Environmental Taxes and SDIL

Spring 2025 saw the Government release a controversial consultation exercise on the reform of Landfill Tax in England and Northern Ireland. The consultation proposed the following changes:

• Transitioning to a single rate of Landfill Tax by 2030 by abolishing the lower rate of tax over a period;
• Removing the Qualifying Fines Regime, which allows the lower rating of certain residual wastes from mechanical processing, from April 2027;
• Removing the exemption for filling quarries from 2027;
• Removing the exemption for stabilisers used in dredged material from April 2027;
• Removing the water discounting scheme from April 2027; and
• Increasing the rate applied to disposals at unauthorised waste sites.

The sole survivor

The only one of these proposals to survive the consultation exercise is to remove the exemption for stabilisers used in dredged material, impacting a relatively small cohort of businesses who may have to modify processes.

No to a single rate of tax

There will be a collective sigh of relief in the waste management sector and far beyond as a result of the Chancellor’s announcement that the majority of changes will not go ahead. Overall, it seems that the Government has recognised that changes to landfill tax can increase upstream costs and detrimentally impact on other areas of economic activity and Government policy.

One of the most controversial of the proposals was to combine the two rates of landfill tax by applying successive increases to the lower rate (currently at £4.05 per tonne) so that it would meet the standard rate (currently £126.15 per tonne but liable to annual increases) by 2030. This would mean that a single rate of landfill tax would apply to all disposals of waste at landfill, thereby making the tax a blunt instrument which would fail to reward good environmental behaviour. A single rate would have disincentivised recycling and could have significantly increased the cost of developments. Construction projects produce substantial volumes of lower rate material, so moving to a higher rate of tax would have threatened, for example, the Government’s proposals to build 1.5 million new homes in England.

Whilst there will not be a single rate, the Chancellor has announced that in future there will be similar rises in cash terms to the standard and lower rates, resulting in rates of £8.65 per tonne and £130.75 per tonne from 1 April 2026. That is still a significant change which could impact on development costs, but it is expected to have a positive impact on behaviour – incentivising the reuse of materials and encouraging their diversion from landfill.

The ‘qualifying fines’ conundrum

This regime has caused HMRC some difficulty as they believe it has been used to commit fraud. Whilst the consultation contemplated its removal, the Government has listened to responses highlighting the potential for increases to the costs of recycling and disposal of wastes, with particular concern about the impact it could have on skip waste. It remains to be seen how qualifying fines will be treated in future but, for now, the status quo remains.

Filling quarries to remain exempt

It is generally accepted that filling quarries is a good thing, as it allows land to be returned to use and allows demolition/construction waste to play a useful role in the process. The landfill tax exemption for backfilling quarries has therefore been retained, although HMRC, DEFRA and the Environment Agency will do further work to ensure that appropriate processes and controls are in place.

Following the Budget, Finance Bill 2025-26 will be introduced and will include the final CBAM primary legislation. CBAM is scheduled to come into effect on 1 January 2027.

A key CBAM Budget change is that indirect emissions associated with the production of CBAM goods will not fall within CBAM until 2029 at the earliest. This means some UK traders may now be below the current thresholds to meet obligations under CBAM from 1 January 2027.

Further changes include:

• The free allowance adjustment in the CBAM rate calculation will be based on a sectoral average of emissions;

• Carbon price relief has been extended to enable recognition of carbon prices incurred under CBAMs;

• Inclusion of an exemption for emissions embodied in UK-produced precursor goods;

• Inclusion of an exemption for emissions embodied in CBAM goods under temporary admission to the UK; and

• Time limit for repayment claims set at three years for customers who have made an error on their return and overpaid CBAM.

Legislation will be introduced to allow a mass balance approach to be used to calculate chemically recycled content.

PPT was introduced in the UK in 2022 and is paid by UK manufacturers and importers of plastic packaging, whether filled or unfilled. The tax bites on packaging that comprises less than 30 percent recycled content, but the definition of ‘recycled’ has proved problematic where chemical recycling has been used. Businesses have not been able to take advantage of the tax break for 30 percent+ recycled content because of the difficulty involved in tracking inputs against outputs.

Many have argued for a system involving a mass balance approach (MBA), which has been used successfully in other contexts to track materials (such as wood) across complex supply chains. The Government consulted on the adoption of an MBA between July and October 2023 and announced in Autumn Budget 2025 that it would be introduced from 1 April 2027.

For many businesses, this is likely to feel a long way away, but that time will be needed both for the Government to legislate and for businesses to build systems to track and certify chemically recycled content.

It also allows time for those who have been claiming exemption where pre-consumer waste plastic is added back into the mix and treated as recycled. Pre-consumer plastic will cease to be recognised as being recycled from the same date.

UK manufacturers and importers of plastic packaging that incorporates chemically recycled plastic will be required to demonstrate that the supply chain for the recycled material from waste to the finished plastic packaging component is covered by a commercial certification scheme that is compliant with the PPT MBA standards. Legislation will be introduced to set out the requirements for adopting the MBA.

The scope of the SDIL will be expanded from 1 January 2028.

As expected, milk-based (and milk substitute) drinks are now subject to the SDIL but the extension will only impact ready-to-drink milk-based drinks sold. Any ‘open cup’ (which we assume means freshly made) milk-based products will not be impacted. There has also been a reduction to the current threshold at which SDIL applies.

The following changes are to be implemented to SDIL (as set out in the detailed consultation outcome):

• The current threshold at which SDIL applies is to be reduced from 5 grams of total sugar per 100 millilitres to 4.5 grams of total sugar per 100 millilitres;
• The current exemption for milk-based drinks will be removed, so the SDIL will apply to these drinks from 4.5 grams of total sugar per 100 millilitres. This applies to pre-packaged milk-based drinks with added sugar, like bottled milkshakes and coffee drinks;
• In addition, the current exemption for milk substitute drinks with added sugar will be removed such that plant-based drinks with added sugar will also be brought into the scope of SDIL, if they contain 4.5 grams or more total sugar per 100 millilitres; and
• ‘Open-cup’ (which we assume means freshly made) milkshakes prepared in cafés, bars, etc will remain out of scope, as will plain cow’s milk and other milk drinks without added sugar.