Insights

Autumn Budget 2025: Landfill tax reform

27 Nov 2025

As the Government publishes its response to the landfill tax consultation, what’s in and what’s out, and what are the next steps for affected businesses?

The UK Government has published its response to the recent consultation on landfill tax reform. These proposed changes represented one of the most significant shifts in landfill tax in decades, aimed at reducing waste crime, simplifying the tax regime and supporting the transition to a circular economy. While the reforms were designed to promote sustainability, they would have had major implications for businesses across waste management, construction, quarrying and related sectors.

Background

Landfill tax has been a cornerstone of UK environmental policy since 1996, incentivising businesses to divert waste from landfill to more sustainable options. However, the current system has faced criticism for complexity, loopholes and vulnerability to fraud. HMRC highlighted that the two-rate structure (standard and lower rates) has created opportunities for misclassification and tax evasion, particularly in relation to lower rate and exempt materials.

The consultation sought views on:

Moving to a single rate of tax
Removing certain reliefs and exemptions
Strengthening enforcement against unauthorised waste sites

The government’s response confirms that these changes will proceed, but with transitional measures to allow businesses time to adapt.

Key outcomes of the consultation

Transition to a single rate by 2030: rejected

Currently, the standard rate is £126.15 per tonne, while the lower rate is £4.05 per tonne for inert materials.

The government has rejected the proposal to move to a single rate by 2030, due to the feedback from respondents that the proposed timescale was too short, did not allow time for the industry to adapt and would significantly impact sectors such as housebuilding, infrastructure and energy intensive industries.

Instead, an adjustment has been made so that the annual lower rate price increase will match the cash increase amount of the standard rate. This will prevent the gap between the rates from getting wider.

The government is also going to continue to monitor developments, so the position may be revisited in future.

Removal of the qualifying fines regime from April 2027: rejected

The government concluded that the qualifying fines regime is not working as intended, but, following representations, it is not going to remove it from 2027. Instead, HMRC will work with the sector to develop further proposals to reform the regime.

Removal of the quarries exemption from April 2027: rejected

Following representations, the government recognises the beneficial use of backfilling quarries and does not want to restrict the activity. It recognises that this is a key route for the disposal of construction and demolition material and waste from housebuilding and large infrastructure projects.

Modernisation of the system of regulation of quarries to support their beneficial activities has been recognised as a key priority as a result of the feedback. There will be a multi-agency approach, involving DEFRA, the Environment Agency, HMRC and HMT working with the industry.

Restriction of the dredging exemption from April 2027: accepted

The consultation proposed that the exemption for dredged materials should be restricted to just those materials, and not for the materials that are mixed with them for stabilisation purposes.

This change is to be adopted with effect from 1 April 2027 to encourage businesses to reduce the amount of material used for stabilisation purposes to that which is necessary and to encourage the development of alternative de-watering techniques.

Abolition of water discounting from April 2027: rejected

Following the responses to the consultation, the government recognised the disproportionate impact that abolition of water discounts would have on some sectors. The water industry, chemical industry, paper industry and some waste processors would have been particularly adversely affected.

HMRC will now engage with industry to consider how the scheme can be better managed to reduce the risk of abuse.

Tougher penalties for waste crime: rejected

An increase in the rate of landfill tax to apply to unauthorised disposals and increased penalties were proposed due to the increased risks of fly tipping and illegal disposal, resulting from the other proposed changes in the consultation.

As the vast majority of the proposed changes have been rejected, it is also no longer necessary to impose tougher sanctions on illegal disposals through the landfill tax system.

What happens next?

Legislation will be introduced in to implement the escalator and restrict the dredgings exemption. Significant work to develop alternative proposals or improve the regulation of reliefs can also be expected for the qualifying fines regime, restoration of quarries and operation of water discounts.

For those affected by any potential changes, continued engagement with HMRC and other regulatory bodies will be key, both individually and via sector associations.

Detailed analysis

Environmental taxes

The Budget includes significant updates on landfill tax, the aggregates levy, plastic packaging tax, fuel duty and motoring taxes, climate change levy, the new UK carbon border adjustment mechanism, soft drinks industry levy, and the replacement of the energy profits levy with a permanent windfall tax.

Summary

Aggregates levy: Devolution to Scotland

The aggregates levy is to be devolved to Scotland from 1 April 2026. A policy paper has been published alongside the Autumn Budget 2025 announcements. This sets out the details of the secondary legislation to be published to change the territorial scope of the UK regime and introduce measures for cross border movements between Scotland and the rest of the UK. In summary:

Aggregate moved from a quarry in Scotland to the rest of the UK will be subject to the UK aggregates levy, and the Scottish producer will have to register and account for it
Aggregate that has been subject to the Scottish aggregates tax, and not relieved, will not be subject to the UK aggregates levy when it is moved elsewhere in the UK
The definition of UK waters will be amended so that waters adjacent to Scotland are excluded from the UK aggregates levy
A credit will be introduced for UK produced aggregate that is moved to Scotland or Scottish waters

Landfill tax

The government consulted on reform of landfill tax with proposals to:

Remove the lower rate of landfill tax between 2027 and 2030

Remove the quarries exemption from April 2027
Remove water discounts from April 2027
Remove the qualifying fines regime from April 2027
Restrict the exemption for dredgings to exclude any material that is mixed with it for stabilisation purposes from April 2027
Increase the rate of landfill tax charged for unauthorised disposals from April 2027

In the Budget, the Chancellor confirmed the standard rate of landfill tax will increase by RPI. The lower rate of landfill tax will be retained, but will increase by the same cash amount as the increase in the standard rate from 1 April 2026. This will prevent further divergence of the rates.

The Chancellor also confirmed that the quarries exemption will be retained. A multi-agency programme involving DEFRA, the Environment Agency, HMT and HMRC will work with the sector to modernise the regulation of quarries.

The qualifying fines regime is also being retained for now but is subject to review, and HMRC will work with the sector to reform the regime.

Water discounts are to be retained because the government recognises the disproportionate impact that their removal would have on some sectors. There is to be a programme of work with HMRC and affected sectors to consider how the scheme can be reformed to reduce the potential for abuse.

The proposals relating to the dredging exemption are to be implemented in full from April 2027 through legislation.

Land remediation grant

DEFRA is to introduce a new grant for public bodies where the landfill tax makes the cost of land remediation prohibitive.

Plastic packaging tax

Key changes to plastic packaging tax in the Budget are:

An increase in the rate in line with CPI from 6 April 2026
Introduction of a mandatory certification scheme for mechanically recycled plastic, which will be consulted on early in 2026
Introduction of a mass balance approach to attribute chemically recycled plastic, with effect from 1 April 2027 and requiring all chemically recycled plastic to be assured under a certification scheme

Removal of pre-consumer plastic from the definition of recycled content with effect from 1 April 2027

Fuel duty

The 5p cut in fuel duty will be extended to the end of August 2026, and then incremental rises will take place to lift the cut as follows:

1p on 1 September 2026
2p on 1 December 2026
2p on 1 March 2027

The planned 2026/27 inflationary increase in fuel duty has been cancelled.

Vehicle excise duty

Search and rescue vehicles will be exempted from vehicle excise duty from April 2027, following consultation with stakeholders to design and implement the exemption.

The threshold for the expensive car supplement for owners of new electric vehicles will be increased from £40,000 to £50,000 from 1 April 2026.

An additional electric vehicle excise duty (eVED) will be introduced from April 2028, bringing in an extra charge of 3p per mile for full electric vehicles and 1.5p per mile for plug-in hybrids in addition to current VED charges.

Climate change levy (CCL)

The main rates of CCL will increase with RPI from 1 April 2027, as usual, but the liquefied petroleum gas (LPG) rates will remain frozen.

The carbon price support rate also remains frozen at the £18 per tonne cap for 2027/28.

Following consultation, electricity used to produce hydrogen through electrolysis, and natural gas used as a source of CO2 in sodium bicarbonate production will be exempted from CCL with effect from 1 April 2026, subject to parliamentary approval.

Energy profits levy (EPL)

EPL is to be replaced by a new oil and gas price mechanism, a permanent windfall tax, of 35% of revenue above thresholds of $90 per barrel for oil and 90p per therm for gas.

UK carbon border adjustment mechanism

UK CBAM is to be included in the Finance Bill, to be introduced with effect from 1 January 2027. Indirect emissions are excluded from the scope until at least 2029.

The government is also considering the feasibility of including refined oil products in future.

Soft drinks industry levy (SDIL)

As previously announced, the rate of SDIL will be uprated on 1 April 2026 to apply a CPI increase and the “catch-up” increment.

In addition, the system will be reformed from 1 January 2028 to:

Reduce the threshold from 5g to 4.5g of sugar per 100ml
Remove the exemptions for milk-based and milk-substitute drinks that have added sugar (excluding milk-based lactose and natural sugars from the source material)

Our comment

The proposed landfill tax changes were significant, and many sectors will be relieved that several of the changes have been either cancelled or delayed, subject to further consultation and work with the sector. If the changes had gone ahead as originally proposed, there would have been very significant costs on construction, house building and quarrying. In the areas where further review or consultation is proposed, it will be extremely important for affected businesses to continue to engage with the process, both individually and through their sector associations.

The plastic packaging tax changes represent good news for many, and the introduction of a new scheme for certification of mechanically recycled plastic will give affected businesses increased confidence in their tax position and reduce distortion of competition by unsubstantiated or fraudulent claims. Removal of pre-consumer plastic from the definition of recycled material will be a blow to some, with UK packaging producers who have invested in recycling technology being amongst the worst affected. Importers of packaging materials or packaged goods will need to obtain details from their suppliers to determine whether the recycled content they are providing in their packaging relates to pre- or post-consumer material.

For UK CBAM, the exclusion of indirect emissions until at least 2029 will help to reduce both the cost and the administrative burden for importers of aluminium, iron and steel, cement, hydrogen and fertilisers.