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We have updated the business regulatory impact assessment for the regulations that the committee are looking at today. You have that in front of you. The major change caused by the scheme coming in later is that all the carbon and waste benefits that we would have had by getting the scheme up and running in August this year, as was originally intended, are being lost. There will be two more years of that pollution and waste.

My officials can give you more detail about the BRIA.

The member is absolutely right to be concerned about this point, and you can imagine that it was a great concern to me as well at the time. There was not only the investment but people’s jobs, including those of the employees of Circularity Scotland and all the people who had contributed to the work that they were doing to build IT systems and so on. All those people were affected by that decision so it was something that I took very seriously.

However, we were unable to proceed with the scheme because, when you are working on a deposit return scheme—as you will have heard in the chamber from other members—businesses need certainty. Deposit return schemes are enormous and complex, and our scheme will affect every single person in Scotland and tens of thousands of businesses. Anyone who sells, handles, purchases or in any way procures either drinks or their containers will be affected.

What businesses need is certainty. They asked for that at every single meeting with them and they asked us to tell them exactly how the scheme was going to work. With the partial and temporary exclusion, the UK Government threw a huge amount of uncertainty into the works. If I cannot even say what the deposit level will be in a deposit return scheme, I cannot go ahead.

When the First Minister and I sat down at a business round table after 26 May, when we got the letter from the UK Government laying out the temporary and partial exclusion, businesses said that they just could not deliver the scheme at all given the level of uncertainty. They said that, even with all the investment that businesses had made, they would now prefer to align with the UK.

There was no way with the conditions that were imposed on us.

The scheme would have gone ahead in August 2023 if the UK Government had granted a full exclusion on the timeline that we had previously agreed.

That is a fair question. It is almost certain that we will need to revise the regulations again anyway, because, for example, if the DMO is able to set deposit levels, we will need to remove our 20p deposit from the Scottish scheme. There may be other conditions. For example, we have written into the regs the exclusion of producers who produce 5,000 or fewer of a particular line. Our exemption rules are in our regulations. If the UK Government has completely different ideas about all that, we would have to repeal it all. Rather than coming back to the Parliament repeatedly, we will wait to see what the UK Government puts into its regulations and, provided that it is in line with what we have agreed through the common framework and our negotiations, we will bring forward those regulations, so that you will have to see them only once and will not have to look at them over and over.

No, thank you, convener.

I last appeared at the committee to discuss our DRS not long after we had received the UK Government’s fatal decision of a partial and conditional exclusion from the United Kingdom Internal Market Act 2020, which made the scheme impossible to progress and forced a delay until at least October 2025. After intensive engagement with businesses to understand the effect of the UK Government’s decision, it was clear that that was the only course of action available to us. No business could seriously be asked to proceed, given that we were unable to say what the deposit would be or what labelling requirements would be in place. As a result, we halted our scheme and agreed to work with the UK Government to develop a UK-wide approach, including a common start date. The draft regulations that the committee is scrutinising set that date.

We have always said that we recognise the need for interoperable schemes, and we designed our scheme in good faith that it would align with schemes across the UK when those launched. When we developed our scheme, both England and Wales planned to include glass in their deposit return schemes. England U-turned on glass only recently, reducing interoperability with Scotland and Wales as a result. Even the UK Government’s analysis shows that the inclusion of glass significantly increases the environmental and economic benefits of the scheme.

Waste management, which includes the DRS, is wholly within devolved competence, so it is extremely disappointing that the 2020 act has been used by the UK Government to undermine this Parliament’s ability to introduce a DRS in Scotland. As a result, business confidence in the DRS has been damaged.

Scottish Government officials have continued to work with their counterparts in the UK, Welsh and Northern Irish Administrations over the summer to develop interoperable deposit return schemes based on the conditions that are set out in the UK Government’s IMA decision letter. Many of those discussions have been shaped by the experience and expertise that were gained through work on the Scottish DRS. Although there has been positive progress, it is important that the UK Government sets out its scheme in regulations in order to maintain momentum, build business confidence and ensure that the DRS launches successfully.

We are in a climate emergency and we need to take action now. Scotland’s towns, countryside and beaches remain plagued by littered cans and bottles. We need to move away from a throwaway culture and embrace new ways to reduce our waste and emissions. The DRS will help us to achieve that.

It is disappointing that Scotland’s DRS will not launch in 2023, but we will continue to work in a spirit of collaboration to realise the economic and environmental benefits that the DRS will bring when it launches across the UK. The onus is now on the Department for Environment, Food and Rural Affairs to make a success of the DRS.

I am happy to take questions.

It was not a matter of getting the labelling or the deposit level correct; it was a matter of knowing what those things were once the UK Government had said to Scotland, “We’re not going to allow you to set these things. We’re going to intervene with the internal market act and not allow that. We will set them.” The UK Government does not have a timeline for setting those things.

One of the ideas that has been proposed is that, unlike in Scotland, under a UK scheme, the scheme administrator—what the UK calls a deposit management organisation or DMO—might set the deposit level. That would mean that the deposit level would not be in place until after the DMO was in place and after it had done its market research to set that level, which could take as long as two years.

It was not a question of getting the level correct. We are now at the mercy of DEFRA and the UK Government’s timescale and regulations. I could not have said to Scottish businesses that we did not know when the deposit level would be set but that they still needed to get the scheme going in August 2023 or even March 2024. Businesses simply cannot operate under those conditions.

I will address your two points, convener. With respect to a low level of deposit, deposit return schemes as envisioned by all parts of the UK—certainly Scotland—are run by industry itself, so the deposit needs to be set at a level that allows the scheme to operate. It is a business; the industry runs a business to collect the materials and get them recycled. The UK Government might consider a scheme in which the DMO sets those levels, but the DMO will still be obliged to set them high enough for the business to operate. The research that we had done on putting in place Scotland’s scheme determined that 20p was the level that was needed to make the scheme viable on a business case. It might be that, for a UK-wide scheme, that figure could be set at a different level—some schemes around the world even have different levels for different types of material—but the level for the Scotland scheme was 20p. If we lowered that, we would be undermining the business case. How can industry run a scheme that is a business without a business case in place? Setting the deposit too low means that the scheme cannot operate.

With respect to labels, the Scottish Government cannot set labelling requirements as that is not a devolved power. The industry had supported labelling changes. The big companies have sophisticated systems in place to get their labelling up to spec—they have much faster line speeds and so on in getting product through. Small businesses need to buy in quantity in order to make it worth while for them, but then it takes them a long time to work that product through. We cannot and did not set labelling requirements. However, the UK Government might do that, if you see what I am saying. I would have been saying to businesses in Scotland, “We’re going to put in place a deposit return scheme, but I can’t tell you what you’re going to have to say on the label and I can’t even tell you what the deposit is, which means that you can’t make a business case.” That would have made the scheme unviable, so we were unable to proceed.

I am happy to go through what is needed. The UK Government has committed to delivering the scheme. It has yet to decide what its regulations will look like, so it has not decided how to set the deposit, the exact terms for excluding businesses, what the producer fees might be and what the labelling requirements might be, such as how shelf-edge labelling will be handled. It still has to decide on all the same things that we needed to determine, and it might make different decisions from or the same decisions as Scotland. Over the summer, we have been feeding into the UK Government all our learning and all the work that we did with businesses, so that it has the benefit of that knowledge.

The next thing that the UK Government needs to do is get its regulations through the UK Parliament. That will allow for the creation of a DMO, which is what we called the scheme administrator. There will need to be Scottish, Welsh, Northern Irish and English versions, because of the way in which the regulations will operate, but the DMOs will work together closely. The DMOs will have to do the work that Circularity Scotland Ltd did, which involved bringing in investment, hiring a team, getting in place the information technology infrastructure, starting to build business relationships and getting the governance sorted out. In addition, it is very possible that they will set the deposit level, which CSL did not have to do.

The UK is much bigger than Scotland and has a much wider variety of businesses. I will describe a challenge that DEFRA has. The undermining of Scotland’s scheme undermined about £300 million of investment that went into the scheme in Scotland overall and, specifically, the investment that went into Circularity Scotland was lost. How will DEFRA go back to all the businesses, such as Coca-Cola, that invested in Circularity Scotland and say, “Okay—we collapsed that scheme, but please put money into our scheme”?

What the UK Government did to Scotland has undermined its ability to deliver the scheme, so it will have to somehow support the DMO to get the required investment. I do not know what steps will need to be taken to do that, but the DMO will need to get the investment, engage with industry, set deposit levels and set up all the exclusions, exemptions and small producer support that we did before it can launch. The intention is to do all that between the end of next year, when the DMO is created, and October 2025. I am cynical about whether it is possible in that timescale, but that is the intention.