What waste and recycling businesses, local authorities and investors need to know
1. Why is the system changing?
For decades, drinks containers have been among the most valuable materials in the waste system, and among the most persistently under‑captured. Despite widespread kerbside collections, billions of bottles and cans still escape capture each year—ending up as litter, residual waste or low-quality mixed recyclate.
The UK’s Deposit Return Scheme (DRS), which is expected to start in all UK nations in October 2027, is the government’s attempt to reset that system. It is designed not just to increase recycling rates, but to fundamentally re-engineer how drinks containers move through the economy: how they are collected, handled, valued and paid for.
The numbers are stark. Around 31 billion single‑use drinks containers are placed on the UK market each year, with current collection rates estimated at 70–75%. The DRS is intended to push return rates for in-scope containers above 90% within three years of launch.
2. Why does this matter to your business?
For waste and recycling businesses, the implications are structural. The scheme deliberately diverts high‑value PET, aluminium and steel away from kerbside collections into a dedicated return network. That will change material availability, contamination profiles and revenue assumptions across the sector.
For local authorities, it alters the economics of household collections and may require long‑standing contractual assumptions to be revisited.
For investors, it represents a nationally mandated infrastructure programme with defined demand but evolving delivery models.
3. Legislative framework
The legislative framework for the DRS is now largely settled across the UK.
In England, Wales and Northern Ireland, the enabling powers sit within the Environment Act 2021. In Scotland, the relevant powers derive from the Climate Change (Scotland) Act 2009.
Implementing legislation is now substantially in place in all four nations:
- The Deposit Scheme for Drinks Containers (England and Northern Ireland) Regulations 2025 came into force in January 2025;
- The Scottish DRS legislation was amended to align with England and Northern Ireland; and
- The Senedd approved the Deposit Return Scheme for Drinks Containers (Wales) Regulations 2026.
All jurisdictions are aligned on a scheme start date of 1 October 2027.
The DRS programme sits within a broader packaging reform agenda, which also includes the Packaging Extended Producer Responsibility (pEPR) regulations.
4. From bottle to return point: how the DRS operates
Core structure
The DRS applies a refundable deposit to in‑scope drinks containers. The deposit is paid by the consumer at purchase and refunded when the empty container is returned to an authorised return point.
Behind this sits a national network of return points, collection routes, counting and sorting facilities, data systems and settlement processes. Much of this infrastructure will be delivered by existing waste and recycling businesses, alongside new entrants, under the Deposit Management Organisation (DMO) procurement frameworks.
Which containers are in scope?
In England, Northern Ireland and Scotland, the scheme applies to single‑use drinks containers:
- made wholly or mainly from PET plastic, aluminium or steel; and
- with a capacity between 150ml and 3 litres.
Exclusions include refillable containers, high-density polyethylene (HDPE) containers, liquid medicines and certain flavour enhancers.
A low‑volume product line exemption applies to product lines with fewer than 5,000 units per year. These products must still be registered and reported, but are exempt from deposit charging, producer fees and labelling obligations.
Wales has taken a different approach by including glass within its DRS. A four‑year transition period will apply, during which glass containers will be collected but will:
- carry a zero‑pence deposit; and
- be exempt from labelling requirements.
For waste companies operating across borders, this creates practical and contractual complexity. For local authorities, it may affect how glass collections interact with household recycling contracts.
Operator
In England, Northern Ireland and Scotland, the DMO is Exchange for Change (trading name of UK Deposit Management Organisation Limited). Wales is expected to appoint a DMO separately, with an application pending from Exchange for Change.
The DMO’s role is not purely administrative: it is the system’s designer, integrator and principal counterparty. It must make the DRS operational by designing and contracting for: collection networks; counting and sorting capacity; IT and data systems; payments and settlement processes; and consumer-facing infrastructure.
For waste and recycling businesses, the DMO’s procurement and contracting strategy is a near-term market-making issue.
5. Following the money, and the materials
Deposit flows
The DRS is ultimately a financial system as much as a waste system. Its success will depend on whether deposits, fees and material revenues balance in practice as intended on paper.
The operation of the DRS can be understood through three connected flows of money.
- Deposit charging through the supply chain: All participants in the drinks supply chain will charge the deposit when selling in‑scope filled containers, from producer to wholesaler, wholesaler to retailer and retailer to consumer.
- Deposit refunds at return points: Obligated retailers and authorised voluntary return points will refund deposits to consumers, typically via cash, voucher or card. Returned containers are then stored on site pending collection.
- How the DMO funds the system: The DMO recovers the costs of operating the scheme through three main revenue streams:
- producer fees charged on a per‑container basis;
- revenues from the sale of collected PET, aluminium and steel; and
- unredeemed deposits where containers are not returned.
The practical consequence is that the DMO becomes the central financial intermediary in the system. It determines how collection and processing costs are funded, how material value is realised and how risk is allocated if return rates, contamination levels or recyclate prices differ from expectations.
For waste and recycling businesses, this makes the DMO a significant national counterparty, rather than simply an administrator.
What about VAT?
HMRC has adopted a simplified VAT approach. VAT is not accounted for on deposits at each transaction stage. Instead, VAT on unredeemed deposits is paid by the UK manufacturer or importer making the first sale.
How does the DRS interact with the pEPR?
Containers covered by the DRS are excluded from pEPR. PET, aluminium and steel drinks containers therefore fall outside pEPR where the DRS applies, while glass drinks containers outside Wales remain within pEPR.
6. The road to October 2027
Spring 2026
Exchange for Change recently published a Reverse Vending Machine (RVM) specification, with further software requirements planned for summer 2026.
Additionally, amendments to permitted development legislation, set to come into force on 9 April 2026, will allow RVMs to be installed within or adjacent to retail premises without the need for full planning permission.
Exchange for Change has also recommended a single flat deposit of 20p, and PwC has consulted on the return handling fee cost model. A final consultation on the return handling fee is expected after Easter 2026, with the final fee anticipated in May or June 2026.
Exchange for Change is now also focused on building core infrastructure, IT systems, RVM software requirements and early commercial frameworks covering fees, the handling model and settlement logic.
Businesses in the waste and recycling sector should be monitoring procurement signals closely during this period.
Summer 2026 to autumn 2027
Retailers will need to make return-point decisions, procure and install RVMs, reconfigure store layouts and train staff.
Producers and brand owners will need to update packaging artwork and labelling, finalise their barcode or marker approach, adapt invoicing systems and ensure data reporting readiness.
Waste and recycling operators should be preparing to tender into DMO logistics, counting and sorting networks, and aligning downstream reprocessing and offtake arrangements.
1 October 2027
The scheme becomes fully operational, with deposit charging, return obligations and performance targets commencing.
7. What remains unresolved
Interoperability across the UK schemes
The UK’s DRS architecture is designed around interoperability: aligned deposit levels, reciprocal takeback arrangements and common identification markers. Wales’s decision to include glass, while environmentally ambitious, introduces operational complexity, and businesses operating across borders will need to navigate the resulting divergence carefully.
Deposit level and return handling fee
Until both the deposit level and the handling fee are confirmed, retailers and waste operators will not be able to fully model the economics of participation.
Material quality and recyclate value
The DRS is expected to deliver cleaner material streams, but outcomes will depend on practical choices around acceptance rules, storage conditions, compaction, collection frequency and sorting controls. Contract design will be critical in aligning incentives with quality outcomes.
Impact on kerbside and commercial collections
There are well-documented concerns from local authorities and waste sector bodies that the DRS may add cost and complexity to existing collection arrangements. Whether or not those concerns prove well-founded, the DRS is likely to require many councils and contractors to revisit assumptions embedded in long-term collection and materials recovery facility (MRF) contracts – including performance metrics, revenue-sharing arrangements and contamination baselines.
Data, identification markers and systems integration
The scheme requires each in-scope container to carry an identification marker (barcode or QR code) to support RVMs and manual scanning, reduce fraud and enable single registration and reporting processes. At a scale of over 20 billion containers per year, this represents a major integration programme. This gives rise to delivery risks that businesses should be planning for now, including systems interoperability, cybersecurity, data governance and the allocation of liability in supply-chain contracts.
8. What this means in practice
The DRS will materially change how high‑value drinks containers move through the waste system. Businesses that treat it as a marginal policy issue risk being caught out by structural shifts in volumes, revenues and contracts.
What should your business be stress-testing now?
Significant volumes of PET, aluminium and steel will be diverted away from kerbside collections and into DRS return networks. Operators of materials recovery facilities should assess how this will affect:
- inbound volumes and composition;
- contamination profiles; and
- revenue assumptions linked to traditional recyclate sales.
Many local authority and commercial waste contracts were agreed before the DRS design was finalised. Assumptions around material flows, revenue sharing and contamination baselines may no longer hold. There is a growing case for reviewing and, where necessary, renegotiating those arrangements.
Investment decisions around counting and sorting capacity, vehicles and depots should be aligned with the DMO’s procurement timetable, not just the October 2027 go‑live date. Businesses that delay capital commitments until the scheme is operational may find themselves excluded from early contracting frameworks.
Where are the growth opportunities?
The DMO’s delivery model requires national procurement of logistics, collection, IT and processing capability. This creates significant opportunities for waste and recycling businesses with scale, operational resilience and data maturity.
Additional opportunities will arise around:
- installation, maintenance and optimisation of RVMs across retail estates;
- backhaul and servicing models integrated with existing logistics networks;
- data reconciliation, fraud analytics and systems integration; and
- high‑grade reprocessing and closed‑loop, bottle‑to‑bottle recycling.
9. Preparing for delivery
Waste collectors and logistics providers
Businesses should map which parts of their existing networks can be repurposed for DRS collections, including retail backhaul routes, depot locations and areas of route density. At the same time, they should identify exposure to potential erosion of kerbside volumes and recyclate value.
Preparing for DMO contracting should be a near‑term priority. This includes assessing bid readiness, considering consortium or partnership structures and developing clear positions on risk allocation, including service levels, contamination liability, machine downtime, force majeure and data and cybersecurity obligations.
MRF operators and reprocessors
MRF operators should model scenarios in which DRS captures PET, aluminium and steel at materially higher rates than current kerbside systems. Understanding the financial impact of reduced throughput of these materials is essential for forward planning.
Reprocessors should assess how DRS grade material streams could support food‑grade or closed‑loop applications and whether additional quality controls, accreditation or investment will be required.
Innovators and new entrants
New entrants may find opportunities where existing operators lack capability, including return‑point services for smaller retail formats, compact collection solutions, digital refund platforms, fraud analytics and consumer engagement tools compatible with DMO systems.
10. How we can help
The DRS sits at the intersection of environmental regulation, infrastructure delivery and secondary materials markets. We advise waste operators, local authorities and investors on procurement, regulatory implementation and commercial strategy.
Whether you are preparing for DMO tenders, revisiting long‑term contracts or assessing investment opportunities created by the DRS, we provide practical, commercially focused advice grounded in a deep understanding of the sector.
Please contact us if you would like to discuss how the DRS will affect your organisation.
For further information, please contact:
Andrew Dean, Partner, Bird & Bird
andrew.dean@twobirds.com
