Ministers have been condemned for providing "false assurances" to the state-owned investment bank over the delivery of the disastrous Deposit Return Scheme that is expected to cost taxpayers millions.
The Herald on Sunday can reveal creditors including the Scottish Government-owned Scottish National Investment Bank (SNIB) will lose tens of millions of pounds after the collapse of the state-backed firm responsible for DRS - despite a ministerial letter of reassurance.
Circularity Scotland (CSL), a non-profit company funded by the drinks industry, called in administrators in June last year after ministers delayed the start of the scheme until at least October 2025.
It collapsed with debts of more than £86.285m.
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It has emerged that unsecured creditors who are owed £79.046m are only expected to receive a tiny fraction of the money that they are owed, despite attempts to claw back funds.
So far joint administrators responsible for handling the collapse have only had just over £2m to play with and £245,589 of that has gone in their expenses.
The Herald on Sunday has learnt that the Scottish Government-owned Scottish National Investment Bank (SNIB) was given a letter of reassurance from ministers that the disastrous DRS scheme would go ahead as normal despite objections, three weeks before a £9m taxpayer-backed loan was officially announced. But SNIB were already planning a joint announcement of the award with Scots ministers.
SNIB has since received just £1m back from that state-backed £9m loan to CSL made in May, 2022 as a result of its floating charge security over the failed company. Although further payments are to be made it is expected to lose more than half of the money.
SNIB uses public money to fund commercial projects across Scotland with the hope that this seed capital will encourage further private investment.
The Scottish Conservatives say that it is "absolutely inexcusable that we should now discover that the decisions which led to much of losses followed false ministerial assurances".
A new administrator's analysis from Interpath Advisory seen by the Herald states that unsecured creditors are only expected to get a "nominal dividend" which experts say is expected to be an amount well under 10p in every pound of debt.
An unsecured creditor is an individual or institution that has debt that is not backed with any collateral and are one of the last in the queue for payouts in any administration. The largest unsecured creditor is Biffa, a waste management firm responsible for collecting and recycling bottles and cans for the scheme, with a liability of £65m.
Older Scots will recall in the 70s being able to get money back on bottles and the DRS scheme was due to work in a similar way.
It was supposed to boost recycling by charging a 20p deposit on every drinks container, which would be refunded through an empties return system.
Biffa was appointed to collect all the recycled containers across Scotland on a 10-year deal.
It has begun Court of Session compensation action against the Scottish Government claiming that the delays have led to £200m of losses sustained from investments plus losses of profits.
The next largest creditor is German firm Reverse Logistics, which is owed £5m. Other businesses owed money include German firm Reverse Logistics at £5m.
Circular Economy Minister Lorna Slater said she was forced to delay the scheme until 2025 after being put in "impossible position" by the then Tory government.
The dispute surrounded Holyrood saying that Westminster which wanted glass excluded so that a consistent UK-wide approach can be taken and was described as "sabotage".
The Conservative government had rejected this claim.
A spokesperson said the decision to delay was entirely made by the Scottish government.
The Herald on Sunday can reveal that this has now been supported by the new Labour government.
It said that the previous UK Government accepted the Scottish Government’s request for an exclusion "on a temporary and limited basis to ensure the Scottish Government’s scheme could proceed, while aligning with planned schemes for the rest of the UK".
A Labour Government source said that delaying the Scottish scheme was "a decision made by the Scottish Government" .
A letter of comfort from April 20, 2022 seen by the Herald shows that Ms Slater told SNIB that the scheme would go ahead despite reports that the Scottish Grocers' Federation (SGF) was seeking a judicial review into the regulations that were being passed and amending the implementation date.
By then the SNIB and the Scottish Government had already begun discussion over her involvement in an announcement expected in May with "potentially with a photo and social media support" about the investment in CSL.
Ms Slater, the co-leader of the Scottish Greens who lost her government role after the SNP scrapped the Bute House Agreement with the Scottish Greens in April told the SNIB: "I wish to reiterate the Scottish Government’s unwavering commitment to delivering DRS by 16 August 2023, and our strong support for CSL as scheme administrator. As well as our own commitment, I would note that Parliament has now voted on two occasions to put it in place and that it is a popular scheme with the public.
"DRS will be a fundamental change in how the Scottish public recycles and, despite its significant environmental and economic benefits, it is perhaps unsurprising that there should be some resistance to change on this scale.
"I hope this letter provides you with reassurance on the Scottish Government’s continuing commitment to DRS as you consider your decision on funding for CSL."
SNIB responded five days later saying that the letter was "helpful" and by May 11, the loan was formally announced.
Scottish Conservative shadow secretary for net zero, energy and transport Douglas Lumsden said: “The SNP-Green government’s incompetence was the only reason the deposit return scheme collapsed. That has cost companies, and Scottish taxpayers, tens of millions of pounds.
“It is absolutely inexcusable that we should now discover that the decisions which led to much of that loss followed false ministerial assurances.
“Even when the UK government offered help to make their flawed scheme work, Lorna Slater chose to pull the plug instead. The responsibility for this fiasco lies squarely at the door of SNP and Green ministers.”
The Scottish government said Circularity Scotland was designed to be funded by industry, and it did not consider it had any obligation to pay compensation to those left out of pocket.
Deposit return schemes are used in many countries across the world to encourage people to recycle drinks containers such as bottles and cans.
Anyone who buys a drink in a certain types of container is charged a small deposit which is returned to them when they take the bottle or can to a recycling point.
The aim was to incentivise recycling, reduce litter and help tackle climate change by reducing the amount of material going to landfill.
Under the Scottish government's proposals, a 20p deposit would be added to all single-use drinks containers made of PET plastic, metal or glass. It would apply to both alcoholic and soft drinks.
The consumer gets their money back by returning the container to retailers and hospitality premises that sell such single-use products to take away.
Some retailers will accept items being returned over the counter.
Larger stores, shopping centres and community hubs will operate automated receiving points known as reverse vending machines (RVMs). These will issue vouchers which can be used to pay for shopping.
Similar schemes are due to be introduced in England and Northern Ireland in 2025 for cans and plastic containers but only Wales and Scotland were planning to include glass.
Biffa said when signing up to deliver the scheme that it was a "fundamental part of Scotland’s efforts to move to tackle climate change and create a circular economy by reducing waste".
It said DRS aimed to ensure that "at least 90% of recyclable drinks containers are captured and prevented from becoming waste".
It said that the agreement to take on the job announced on June 19, 2022, a month after the loan was agreed, came after "several months of close collaboration between the organisations" and was expected to create around 500 jobs in Scotland to support the collection, sorting and counting of products.
A Biffa spokesman told the Herald on Sunday: “Biffa was selected by CSL as the logistics partner for the delivery of the Scottish Deposit Return Scheme and invested significant sums to support its timely and successful implementation.
"This was done in good faith and on the expectation and understanding that the delivery of the scheme had been mandated by the Scottish Government. Having carefully reviewed our position with our advisors, we can confirm that we are taking legal action to seek appropriate compensation for the losses Biffa has incurred. Given the legal action, we are unable to comment any further at this time.”
A Scottish Government spokesman said: “The Scottish National Investment Bank is operationally independent from the Scottish Government. CSL was a private company which was industry funded and led. Any amounts returned to creditors by the Administrators will be dependent on Circularity Scotland’s assets.”
Ms Slater said: “Deposit return schemes that include glass are already in successful operation across Europe and the world, and if the last Conservative government hadn’t torpedoed our work here in Scotland then it would already be operating successfully here as well.
“We were on the cusp of a successful launch when the Conservatives used new legislation that allowed them to unilaterally veto Scottish Parliament legislation, breaking their own manifesto commitment in the process.
“The justification at the time was that it had to align with the UK scheme, to which one might ask, what UK scheme? It’s a scheme that didn’t exist in 2023, still doesn’t exist in 2024, and shows no sign of existing in 2025 or beyond.
“As usual the Conservatives play political games, and Scotland, our environment, and our businesses suffer.”
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