The CEO of the Scottish National Investment Bank (SNIB) has admitted around £8 million of public money is set to be lost from the now-defunct Circularity Scotland following the collapse of the deposit return scheme.

Circularity Scotland entered administration due to the troubled deposit return scheme being delayed after the UK Government refused to give an exemption under the Internal Market Act to glass being included in the proposals.

That came after several delays from the Scottish Government, while businesses issued stark warnings over costs and administrative burdens.

The deposit return scheme is now set to be launched in 2025 at the earliest, to align with a UK-wide policy, after Tory ministers changed their minds about including glass.

Circularity Scotland was handed a £9 million loan from SNIB in May 2022, helping to lever in another £9 million from the Bank of Scotland.

Read more: State bank could lose £9m of public money on deposit return scheme

It is understood that the Bank of Scotland did not lose its funding because it waited for legislation to be finalised before parting company with the money. 

In June, Circularity Scotland unable to carry on as industry bodies refused to keep funding it and went into administration with the loss of up to 60 jobs.

The CEO of SNIB, Al Denholm, who joined the bank in March, has now told MSPs he is confident that £1 million of public money could be returned – but has acknowledged that at least £8 million will be lost.

Appearing at Holyrood’s Net Zero Committee, Mr Denholm was asked by Conservative MSP Douglas Lumsden about how much of the £9 million investment SNIB expects to retrieve.

He said: “We invested a few years ago into Circularity Scotland a £9 million debt facility.

“In our latest annual report, we show that we expected a write-off at that point of £4.5 million.

“We’ve also said, in the annual report, that we expect to recover around £1 million but that will be very much dependent on the administrator process.”

Mr Denholm added: “We’re aware it will go through due process and that estimate seems, from what we are hearing, a reasonable estimate for recovery.

Read more: Deposit Return Scheme: Circularity Scotland calls in administrators

“At the time of writing the annual report, which was in March, that was our view at the time. Things developed since then…which crystallised what was at the time an unrealised loss into a highly-likely loss.”

The CEO confirmed he expected £8 million of the £9 million loan to be lost.

He was asked about the issues the Internal Market Act threw up for the deposit return scheme after the UK Government refused to offer an exclusion to the controversial legislation for glass, despite previous plans for its own scheme including the material.

Mr Denholm told MSPs that “at the time the investment was made” in Circularity Scotland, “the elements of risk were properly discussed”.

He added: “One of the elements that we saw at the time was what we call a risk mitigant – the deposit return scheme was something that was being used in a number of countries globally – the UK Government and various political parties had all shown their support for that.

Read more: SNP raised DRS concerns three years ago despite '11th hour' claim

“Our view at the time was that was a positive backdrop for the Circularity Scotland business case.

“As it turned out, there were nuances in the Internal Market Act. I think in some ways it hadn’t been tested. It was tested, clearly, with the deposit return scheme.

“I think going forward, one would clearly take that into account as a lesson learned if there was a similar analysis required for the company we were looking at. Not all companies have that as a potential issue.”

A UK Government source said: "The UK Government offered a solution which would have rescued the SNP-Greens' botched scheme, which had met with widespread opposition from businesses.

"The UK Government's offer of a partial exemption for a cans and plastics scheme was supported by Circularity Scotland and businesses. The Scottish Government still chose to delay and this is a mess entirely of their own making."