Business needs high ambition policy and international consistency to deliver a circular economy.

• New report finds the UK’s circular economy regulation is increasingly diverging from the EU’s, as European product standards are strengthened. Without prompt action, UK businesses could face additional costs while consumers are hit with an influx of low-quality products.
• Targeting this Autumn’s Circular Economy Strategy for England, the report calls for an ambitious policy framework that maximises interoperability between the UK and EU. Government should use this moment to learn lessons and good practice from other countries and devolved nations.
• The Aldersgate Group and IEEP UK’s engagement with businesses highlights the need to resolve existing policy misalignment, and to use trade and policy measures to support high standards alongside a level playing field on circularity.

A new report published by the Aldersgate Group and the Institute for European Environmental Policy UK (IEEP UK) warns that regulatory divergence between the UK and the EU on circular economy could create additional burdens for businesses, and leaves the UK market exposed to products made to low environmental standards.

The report calls on the UK government to address this through a strengthened vision for policy and regulation in the UK, including with the upcoming Circular Economy Strategy for England due in the autumn. This includes identifying and mitigating challenges caused by divergence, boosting collaboration with the EU on data sharing, and bolstering legislation further up the waste hierarchy to reduce resource use and consumption.

It highlights the EU’s ecodesign policy as one of the starkest examples of divergence between the two jurisdictions. UK businesses that export products to the European single market will need to comply with this regulation, potentially leaving them vulnerable to competition from producers only selling to the UK market, alongside higher costs if required to comply with different and incompatible standards across different markets.

Without measures to address this situation, ambitious and innovative businesses selling into the EU market will be placed at a disadvantage. Conversely, UK consumers would find themselves facing lower-quality products, with less access to repair, reuse and recycling compared to those in Europe.

Both jurisdictions have high ambitions on this issue, and the UK has seen success in places like Wales, which has one of the highest recycling rates in Europe. Leaders should take the opportunity to learn from each other, particularly in implementation of high ambition plans, to drive positive outcomes.

Rachel Solomon Williams, Executive Director, Aldersgate Group, said: “Delivering a circular economy will mean that we make best use of our resources, strengthen supply chains, and support the delivery of net zero and environmental targets. However, the UK’s current regulatory and fiscal frameworks do not effectively enable circularity and fairly reward ambition. Regulations are acting as a barrier to offering circular products, and ambitious businesses face competition from those operating with lower standards. As other markets, such as the EU, make progress, we must collaborate to ensure the UK is not left behind. It’s critical that the government takes action through the upcoming Circular Economy Strategy to address potential divergence and reward ambition in the private sector.”

Ben Reynolds, Executive Director, IEEP UK, commented: “This report makes a clear case of the benefits to the UK for aligning with the higher circular economy standards that the EU has established in the period since Brexit. This would chime with the Government’s aims to remove trade barriers and increase economic growth, whilst also delivering for the environment and for UK citizens. The voices of businesses are clear that further delays in action on this may lead to lost revenues and higher costs.”

John Howe, Managing Director of Michelin UK, said: “We hope the Government takes this Aldersgate Group report into account as it finalises its Circular Economy Strategy. An environment that encourages investment in domestic circular economy technologies could be a real driver for growth and jobs in sectors such as automotive remanufacturing. On the flip side of that, falling behind the EU in terms of product sustainability standards leaves the UK open to imported products that fail to meet those standards – which is a threat to UK industry as well as the environment.”

Report recommendations for UK Government and devolved administrations

• Strengthen ambition with a shared vision for circular economy in the UK, providing clarity on the direction of travel to businesses and other key stakeholders, and timelines for new policies. As circular economy touches upon on a wide range of Government policy – from industrial strategy and decarbonisation, the upcoming food strategy, to housing and the built environment – how ambitions for circular economy will be embedded across the economy and Government policy more holistically must be clearly set out. This also includes consistency and interoperability of approaches across the devolved nations to help ease business certainty and compliance. Such integration of ambition will help to prevent circularity falling by the wayside and avoid potentially misaligned policies hampering progress. It also means that multiple Government departments should be working together across Whitehall and with counterparts in the devolved administrations.
• Identify and mitigate challenges for businesses caused by divergence. The UK Government and devolved administrations need to identify areas where divergence negatively impacts businesses trading across the UK and EU border and ensure these challenges are resolved. Voluntary alignment may be beneficial in some cases, or other forms of support and interoperability could be considered. Areas of focus identified in this report include ecodesign, product passporting and carbon taxation.
• Increase collaboration with the EU for data and good practice sharing. To aid and assist the sharing of knowledge and data on circular economy flows in Europe, the UK should consider joining the European Environment Agency, following the example of other non-EU country members such as Iceland, Norway, Switzerland and Turkey.

Looking ahead to the Circular Economy Strategy for England:

• Identify implications and opportunities relevant to trade to embed interoperability. Policy and legislative developments in the EU should be a key consideration in any output delivered by the Government and the Circular Economy Taskforce, particularly where there is a risk that divergent approaches will increase costs to business or introduces barriers to trade and economic growth. The Government should also take the opportunity to learn lessons and good practice from other countries and the devolved nations.
• Embed circular economy-related infrastructure, jobs and skills needs, and policy interventions required to support those.3 Businesses will need to increase circular economy skills and capabilities across their workforces. It will be essential to ensure the Government supports businesses to invest in new skills with clarity on the direction of travel and other enablers (e.g. targeted support for SMEs, circular economy embedded in training and curriculum, etc). EU circular economy policies often link with innovation and research funds (e.g. Horizon Europe), with opportunities for academic and research partnerships.
• Leverage existing legislative and trade developments to support ambition and a level playing field for circularity. The Product Regulation and Metrology Act 2025 and the 2026 review of the Trade and Cooperation Agreement are opportunities to leverage legislation and trade agreements to better enable the implementation of an ambitious circular economy strategy.
• Resolve policy misalignment, currently hampering circular economy practices. Businesses highlighted low regrets actions for the Government, with opportunities to resolve situations where regulation or other policies are limiting progress with circularity. For example, public procurement, regulation and policy could better incentivise circular economy actions higher up in the waste hierarchy, such as repair and re-use, rather than focusing on interventions around end-of-life waste disposal.