The House of Commons Environmental Audit Committee suggested that a complete ban on the cups should be imposed if all single use coffee cups are not being recycled by 2023.
It recommended that revenues from the levy be invested in reprocessing facilities and ‘binfrastructure’ ensuring that the remaining disposable cups are recycled.
“If more people used reusable coffee cups there would be less waste, which would reduce the burden on local authorities. This would cut costs for coffee retailers, who would need to purchase and dispose of fewer cups,” the report says.
The report recognised sales initiatives from retailers giving discounts for customers who provide their own cups, a move Pret a Manger introduced last year and recently upped to 50p.
However the MPs put the level of awareness and uptake of such schemes at a “low” 1%.
The committee's chair, Mary Creagh MP, said: "The UK throws away 2.5 billion disposable coffee cups every year - that's enough to circle the planet five and a half times.
"Almost none are recycled and half a million a day are littered. Coffee cup producers and distributors have not taken action to rectify this and government has sat on its hands.
"The UK's coffee shop market is expanding rapidly, so we need to kick start a revolution in recycling."
Coffee cups were described as the “tip of the iceberg” when it comes to packaged recycling, with a compliance fee structure on packaging also advised in the report.
Food packaging firm Biopac dismissed calls for a “plastic tax” earlier this week, saying it was not the solution to reducing waste.
Speaking on the potential "latte levy" on coffee cups, chief executive of the Association of Licensed Multiple Retailers (ALMR), Kate Nicholls, said: "Efforts to reduce waste are welcome and steps to tackle environmental damage are laudable, but the major concern here is that it will simply increase costs for businesses without having any discernible effect in tackling the problem.
“Small and medium-sized businesses will be particularly vulnerable to cost increases and many of them will find it difficult to absorb this cost or even pass it onto customers as the cost of the cup is already factored into the price."