Going full circle (2025)

Defining a circular economy

Circular economies seek to end waste as a concept by linking production and consumption at a granular level. In practical terms this means repair, reuse, recycle, refurbish and reimagine use potential but ultimately, it drastically reduces or stops ‘waste’ going to landfill.

Any strategy to make an economy more circular must look at the construction sector for challenges and solutions. Consuming vast quantities of raw materials, its use of recycled materials across Europe is around 12%, far below that of packaging and accounts for the largest volume of waste in most developed economies. Figures from the Department of Environment, Food and Rural Affairs (Defra) show that out of the 191.3m tonnes of waste created in 2022, 60.8m tonnes were mineral wastes from construction (such as concrete) and 49.2m tonnes of soils.

By 2050, the UK Government aims to fully implement a circular economy strategy and some of the proposed ideas in the most recent report on the circular economy are sensible. The report ‘Our waste, our resources’, published in 2018, promised greater digital tracking of waste composition – which exists with domestic waste disposal – and the toughening up of regulation by making it easier to identify rogue operators. Yet seven years on, this challenge of ‘waste crime’ persists, which suggests that previous efforts have not fully worked.

A new circular economy strategy is being mulled over by a Circular Economy Taskforce, which was formed in November 2024 by Defra. And this new strategy must build on previous reforms and recommendations to make big decisions on material use and efficiency, the longevity of the materials used, and a disposal strategy.

This report focusses on the Government’s proposal to use the landfill tax as the headline mechanism to enable a circular economy, while introducing international comparisons demonstrating the importance of having the correct infrastructure and platform to tackle waste crime and permit a circular economy to exist in practice.

England’s current approach

Britain does well at steering its economy away from disposal. Since the beginning of the UK’s first waste management strategy, overall waste sent to landfill has dropped by 73% over the last 30 years, in part due their strategy for municipal recycling, and more recently, regulations on packaging. The construction sector does better than other sectors in both volume and percentage terms of waste sent to landfill compared to the rest of the economy.

Compared to Europe, there is some room for improvement. For instance, the continent is better at repurposing soils, but the quantity of non-hazardous mineral waste sent to landfill is higher than the European average.

Alongside the introduction of waste codes and clearer licensing rules for landfill operations and groundwater protection, the UK also implemented a staggered landfill tax. Introduced in 1996, this provided the margin for recycling plants and other forms of recovery by making them increasingly cost competitive in comparison to disposal of waste.

There remain flaws with the tax. Its pressure on behaviour is indirect because of the structure of the waste recovery market in the UK. The site that the waste is deposited on is liable for the tax, with any increases passed on further down the chain – to firms that bring waste to the site, and ultimately, to builders. (For unauthorised sites, anyone who knowingly permitted the disposal to be made, including the landowner may be taxed.)

Almost all parts of the chain need a licence or an exemption with the Environment Agency, and at each part of the chain the liability for the waste is supposed to shift. Some construction firms do hold sites that they deposit soils and aggregates on; some also will apply for a permit to move soil and aggregates between different sites that they are working on. Currently, all sites that take waste need either a disposal or a recovery permit.

The chain is quite opaque, as it is only the last firm in the chain – which holds a disposal licence – that is directly impacted by the tax incentive.

For inert landfill, disposal permits are much easier to obtain than environmental permits as applicants for recovery permits must prove that they would otherwise fill the site with ‘non-waste’ materials. Operators with planning permission to fill quarries need only to apply for a permit to qualify for a tax exemption. This approach has ensured greater opportunities for inert materials to be reused, specifically in land reclamation of quarries but opened the door for ‘waste crime’, where non-inert materials have been disposed of within inert loads.

A further quirk of the tax is its dual-rated charging structure, which depends on the type of waste that is produced, as well as a set of exemptions. It has a lower rate (£4.05) for less polluting materials and a higher rate (£126.15) for more polluting materials. Quarries with planning consent requiring restoration can claim a landfill tax exemption for that work only if their environmental permit restricts them to materials classed as inert. According to HM Treasury’s analysis, this comes to an average of 20 million tonnes per year.

The Government’s proposed approach

The Government plans to deal with the Circular Economy in a similar way to its 1990s waste strategy: tax it. In a consultation which closed in July 2025, Defra asked the Treasury to propose removing the Lower Rate of tax for inert waste and from 2030 applying the Standard Rate to ensure greater recycling and reuse.

The problem is, there is little infrastructure for pathways other than landfill for many materials. Recycling is expensive and technologies to aid it take a long time to develop; and there are very few facilities to exchange excavated materials for later reuse.

Reuse on site also has its challenges. For smaller sites and commercial premises, there simply isn’t the spare land to reuse inert materials and local planning does not look favourably on plans to raise a development’s ground level, particularly if near an existing community.

Licenses for reuse also pose a challenge because they have weight limits, which can make donations to other projects difficult.

Before the consultation in July, the tax was consulted on in March 2023. Industry told the Treasury that issues with the landfill tax were greatly to do with enforcement rather than its structure. Enforcement was overwhelmingly carried out against registered sites as they are easier for the Environment Agency to identify, unlike uncompliant, unregistered ones.

Some respondents claimed that the large gap in tax between Standard and Lower Rate drives misclassification. This gap was created over a long period as the Standard Rate was increased on an escalator from £1 per tonne in 1999, to £3 in 2005 and £8 in 2007 – from 2015 the tax has been adjusted annually with the RPI of inflation. This enabled long term planning and ensured the infrastructure to process it was in place. The lower rate has largely tracked the retail prices index, or RPI. If the Government were to change the lower rate – which has its own consequences – it should at least stagger the increase over a 25 year period.

For the Standard Rate, each £1 increase in the tax saw an average of 2,079 tonnes of waste disposed for each local authority, but data isn’t available to tell how the Lower Rate has impacted waste disposal or recovery, as the increase to the tax has been too small to detect changes to behaviour.

Most concluded that “distinguishing between active and inert materials which are less polluting, supports net zero goals.” Some argued for a ‘middle rate’, or for the Government to “include minimum recycled content requirements for construction materials, more developed guidelines for soil and stone reuse, and stronger requirements for processing material before the lower rate could apply” as alternatives.

Tax receipts from landfills have been in decline over the past decade, while the standard rate has increased, meaning it makes a smaller proportion of overall waste. Income from the lower rate of tax has occupied a similar proportion of overall receipts over the same 10-year period.

Problem 1: A lack of capacity

To implement the tax in time for 2027, existing landfills using disposal permits will have to reapply for ‘recovery permits’. The NFB’s analysis shows that there are 431 sites that exist under this current licence that will, if the Government’s proposed tax goes through, be liable for £126.15 per tonne, up from £0. At present, this analysis shows that over the past decade, the Environment Agency has granted an average of 17 permits per year – if all the quarry sites that hold disposal permits were to apply for recovery permits, they would have to increase the number of permits granted by 1,141% over the next two years.

But what about exports of waste? There is not an issue with export of lower rate waste as the cost of exporting it is unjustified compared to paying the tax. (Exports of waste are tax exempt but require other expensive permits). Currently, the NFB’s analysis of data published by the Organisation for Economic Cooperation and Development (OECD) shows that only three firms in the UK export waste which includes the waste codes that are classified as inert, largely soil and stones. Although the cost of issuing official ‘notifications’ for each export of waste is high compared to landfill tax, a parliamentary question asked in 2023 showed that for the average of 2.9 million tonnes of waste exported (between 2015 and 2021), only nine firms faced any form of financial penalty in the preceding 6 years (between 2017 and 2023).

Problem 2: A lack of enforcement

The landfill tax has one of the biggest rates of evasion out of any tax. The estimated landfill tax gap is 22.6%, leaving the Government short of £150m. It is largely left to the EA to police (although HMRC has the power to fine all sites, including those operating illegally) which despite being given more powers, has not been given greater resources. Consequently, the number of enforcement notices has reduced over the last few years, even as the number of illegal sites has remained about the same.

Alongside the potential for evasion of the tax is another related problem: waste crime. It is still a big issue in Britain. According to the Environment Agency (EA) around 20% of waste is estimated to be disposed of improperly, with estimates saying it costs the industry £1bn per year, as waste dumped on land illegally must be disposed of by the landowner.

The risk of being caught is low, especially as the likelihood of crimes being reported is 25%, which encourages crime. Yet, those who are prosecuted can be anyone within the chain meaning it is often the worst actors who get away with it, as it is easier to prosecute compliant and legitimate firms.

Respondents to the EA’s latest waste crime survey were asked to estimate the amount of waste in their industry which is disposed of illegally. Overall, waste crime is on the rise, with legitimate operators rightly expressing their disgruntlement. One big problem, small scale fly tipping, reportedly affects half of the industry and is reportedly on the rise.

Landowners and waste firms complain that the heaviest burden of clean-up falls on them. Ministers say they support the “polluter pays” principle, yet site owners remain out of pocket for fly-tipping, since pinpointing where in the chain the offence occurred is often too onerous.

This is partly because for smaller amounts of waste, the EA doesn’t get involved, and it is instead the job of the local authorities, who may issue fixed penalty notices, but lack the skills to properly investigate. On average 800 sites are closed every year, and a third of them are typically prosecuted. Most of the remediation, if it even is obtained, falls short of that is needed to cover the costs of disposal.

The EA are planning to fix their lack of resources through a 10% waste crime levy on waste permit fees to pay for enforcement against rogue operators, which would further compound the cost that legitimate operators are faced with.

An increase in waste crime, which is already high, would make existing businesses – which depend on the margins on the tax – unviable, as well as disincentivising new businesses from starting. This will not incentivise private investment in infrastructure to repurpose inert materials.

The NFB worries that an increase to the lower rate would provide further incentive for waste crime and landfill tax misclassification. Especially as there is not a push for greater enforcement from either the Environment Agency or HMRC. Those who play by the rules are likely to be penalised as others may deliberately turn a blind eye to what goes on further down the waste management chain.

Solution 1: Germany’s waste policy – don’t tax it. Ban it

More than 300,000 people are employed in the Circular Economy in Germany, generating a gross value of 28bn euros. The number of landfills in Germany has been in decline, and due to the country’s Circular Economy Act, this is expected to continue, as the disposal of waste is one of the last options in the statutory waste management chain.

Operating a landfill comes with far more stringent regulations, with the type of waste that is stored there having to be meticulously recorded, alongside stringent aftercare requirements. This is all to make sure reuse takes precedence over recycling, which takes precedence over disposal. Above all, materials, as long as they are clean should be firstly used on site to avoid the environmental cost of shipping them, something which NFB members tell us has been made increasingly trickier in Britain.

For instance, in Germany it is illegal to dispose of topsoil obtained in construction, with a translation of the country’s landfill Ordinance reading that it “must be maintained in a usable condition and protected from destruction or waste”. They can achieve this outcome because they have the soil exchange infrastructure in place – topsoil can rot if it is not stored properly.

Since 2023, they have implemented the following:

• “Substitute Building Materials Ordinance” – this enables the use of waste materials as substitute building materials, if they are not overly contaminated with pollutants.
• “Federal Soil Protection Ordinance” – only allows soil to be recycled after it has been inspected for a list of contaminants. This requires records to be taken to document where it is from, what it contains and how it was transported.
• “Landfill Ordinance” – a framework that says that only earth that cannot be recycled or reused because of contamination can be sent to landfill.

Their overall strategy emphasises the way that this can fuel industry in Germany, where firms are increasingly incentivised to develop and use recycled materials. The National Circular Economy Strategy sells it as a way to reduce dependency on other countries, as countries reuse the materials they have rather than producing new materials. The Government is funding startups with promising technologies, pledging to pare back onerous rules on material use and to train more recycling specialists.

Examples of this include the championing of construction using timber to reduce overall material use. They also plan to create a framework to expand reuse with a digital resource passport for buildings. This will contain all the materials used, and how it was installed in a building, enabling the selective dismantling of buildings, and going forward, refurbishment.

They’ve gone a step further with public sector works, plans for their end of life must be included in their original plans.
In the UK, trials of soil exchange projects have been slated but to date, have not begun. CL:AIRE have launched a project in collaboration with several universities, to develop guidelines for how ‘soil depots’ can be established in the UK.

Solution 2: The Netherlands – the most circular in Europe

Dutch CO2 emissions have reduced in the sector over the last 35 years due to their implementation of a circular economy. They have achieved this through collaboration with industry, not imposition. Organisations like the Foundation Dutch Green Building Council, are a way for academics, industry and Government to push for progress. Cirkelstad, another body, runs over 75 local events with industry experts across the country about the circular economy to better educate industry.

Despite having one of the highest rates of reuse in Europe – with 88% of waste being recycled, and only 10% being dumped – the Dutch Government are pulling ahead with the next level of reforms, cutting the use of virgin raw materials. Only about 8% in 2022 was reported to be non-virgin.

Essentially, they are delinking growth in the sector from the use of virgin materials, which has historically been correlated. For now, demolition waste escapes landfill mainly by being crushed into aggregate for backfill, such as road foundations. The Dutch Government wants to achieve more productive methods of circularity by 2050, alongside starting ambitious plans for a new housing boom.

They have sold the benefits of the circular economy in three ways: it would make the Dutch economy less dependent to external shocks; it would reduce emissions and reduce the long-term costs of resource depletion.

This will be achieved through strong industry collaboration, a powerful joint body helping to ‘narrow the loop’ of the cycle – reducing the number of raw materials – maintaining existing infrastructure, reusing buildings or parts of buildings, and reducing emissions from technical installations, like lighting and heating systems.

Recommendations

1. Create a national system of mandatory digital records for buildings.
Knowing what went into a building a few years after it was built is tricky. There are no requirements for record keeping over plans and material use. Mandating this would reduce material use in retrofitting buildings and allow for cleaner demolition. Both would reduce overall material use and extend the life of preexisting buildings.

2. Reward firms that use repurposed or recycled materials.
Focussing on incentivising used and recycled materials in construction will both cut back on the amount of raw material required and divert less waste from landfill. This will encourage firms to compete on the price of recycled resources.

The Government should follow the lead taken in nations such as Finland with their BES system to explore how products, such as pre-cast concrete, can standardise elements and connections and so simplify re-use.

3. Create a Government-backed scheme to help construct the number of recycling or exchange facilities needed for construction waste.
Like Germany, investing in waste management innovation will help produce more energy efficient ways to recycle resources in the first place. This should be both in terms of physical infrastructure, for instance by ensuring that there are enough soil exchanges, to technological advances in, for instance, methods to recycle concrete.

This could be meaningfully achieved by providing more funding to the Earthbanks project, so that they can develop a set of guidelines more quickly. It is the most promising way that the Government can achieve its commitment to ‘piloting’ a ‘Soil Re-Use and Storage Depot’ scheme. As suggested in Recommendation 5, the implementation of this scheme should be tied to the landfill tax.

4. Place a greater emphasis on soil testing to tackle offenders.
The key to tackling evasion of the tax is not to increase it, but to increase enforcement of it. There are examples of shady operators mixing standard rate and lower rate materials and attempting to pass it off as lower rate. Putting aggregates on a higher rate will only encourage illicit operators to avoid paying the tax entirely. Instead, the EA should scale up its soil testing, which it will need in the long run to oversee soil exchanges effectively. This should be funded by Government initially, but in the long term, partly from larger fixed penalty notices placed on rogue operators. Their proposals to tax all permit holders to tackle offenders with a waste crime levy is misguided – many offenders do not even hold a permit.

5. Implement the new uplift over at least the same period as the original tax. Uplifts should be triggered by the number of recycling or exchange facilities for construction waste.
The Standard Rate tax worked because it created the margins for other avenues for the waste to be used, helping to develop long term plans and solutions for sortation and recycling.
If the Government is set on taxing lower rated waste as higher rated waste, we strongly warn against the proposed implementation period. Increasing the lower rate to meet the same rate as the standard rate plus inflation over the next 25 years – rather the next five – to meet the 2050 circular economy goal will increase the incentive over time to develop new resources. Our projection, included in our PDF version, assumes that a ‘facilities target’ was reached in 2030, however, this is contingent on option 3 being rolled out effectively.

6. Make the amount of landfill tax being paid at the end of the waste disposal chain clear to all parties within it.
The tax incentive must apply to the waste creator, not just the waste disposal site, as they are the party that are supposed to be motivated by the tax to switch to other methods of disposal. Forcing firms to itemise the amount of tax on waste transfer notes could also cut waste crime by making it clear the rate of the materials that are being removed from site.

7. Cut down on regulations for on-site or between site movements of resources.
The EA will be given the power to define new exemptions to those who needs to claim ‘waste operations’ permits and ‘waste controlling and transporting activities’. We encourage the EA to use this to make it easier for firms to use the waste generated on site for other projects on the same sites, or other sites that they operate.

8. The EA should retain the disposal permit.
The disposal permit should he retained, with testing and enforcement reforms implemented to tackle waste crime and revenue loss.
It should be considered for removal if testing and enforcement reforms fail, and if this is the case, only when all operators holding one are able to immediately transfer to recovery permits.

This would give the Government time to analyse where the disposal permit works or has challenges that they cannot overcome with testing and enforcement, while ensuring the recovery permit process is fit for purpose.