It is possible they just don't want loads of loose shredded paper in the recycling bins. As most of the mixed recycling stuff gets emptied onto a moving a conveyor belt, with people wearing gloves to sort it rapidly into various bins/boxes as it rolls past them, the tiny bits of paper would end up rolling past everyone and into the machinery working the belt. That could put the equivalent of a spanner in the works.
Plus, if the binmen are a bit clumsy emptying the recycling bins into the lorry, the streets would be in a snowstorm like a New York ticker-tape parade. It is bad enough when larger bits of recycling fall out, shredded paper would be even worse to clear up.
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