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Taxing tourists – killing the golden goose?

Suddenly, talking about taxing tourists is all the thing.

Over the past few weeks we have seen a sudden flurry of interest in the possibility of councils being empowered to introduce a ‘Tourist Tax’ or Transient Visitor Levy (TVL), to use the more formal terminology.

Up until very recently indeed, the strongly held government line has been the one urged by the various trade associations of ‘this will not pass’. The responsible Cabinet Secretary has continued to reassure the sector that:

‘…Scottish Ministers are not willing to consider requests to explore a possible tourist levy with local government unless the industry is involved from the outset‘ [Letter of December ’17 , cited by UK Hospitality (UKH) in their evidence to the Scottish Parliament].

By late September that line was already fraying as Fiona Hyslop (Cabinet Secretary for Culture, Tourism and External Affairs) answered parliamentary questions with a more nuanced line:

‘Our position remains that we are not in favour of introducing a visitor levy unless the tourism industry is involved from the outset. However a healthy and informed debate would be helpful for local authorities and, most importantly, for COSLA and the national bodies that the STA represents’ [Official Report, 26th September].

So, it was no surprise that when speaking to a tourism event on 2nd October the First Minister announced just such a national consultation with all the usual characteristics of it being ‘…evidence led …objective …all voices to be heard etc …’.

Having observed the Scottish Parliament’s Culture, Tourism, Europe and External Relations Committee hear evidence from industry representatives last week, it seems to me that the different parts of the industry are in something of a tangle over their understanding of any such tax and how they approach the debate about it. That may be because they had previously assumed the resistance to any such tax was rock solid and that they were guaranteed unwavering government support.

Speaking around the same time as the conference where the FM proposed this consultation, the head of the Scottish Tourist Alliance described any possible tourist tax as:

‘The biggest issue facing our industry today …’ [Scotsman, 2nd October ]

Interestingly, just a few days after this discussion UKH in Scotland highlighted worries about post Brexit work force constraints as one of the most serious issues facing the sector; despite their Executive Director Willie Macleod also being a staunch opponent of a TVL, that got no mention.

And in his evidence to the committee Marc Crothall of the STA suggested a levy could see tourism businesses go ‘over the cliff’. He supported these claims by reporting a statement by a Highland councillor that a possible tourist tax would be £3.00 per head per night and [rightly in my view] described this as penally high.

This seems to me an example of the industry introducing the classic ‘straw person’ argument: seize hold of the worst possible example and extrapolate widely and wildly; that tends not to impress in a normal consultation exercise.

A more balanced view was taken by Pete Irvine in his evidence to the Parliament, when he argued that the position of Edinburgh was unique in the tourist market.

I am not sure I quite buy that – after all St Andrews, and at times of the year parts of the Highlands and Islands are also up there – but it is a very good point about the highly variable local impact of tourism and the varying seasons . The key issue for councils such as these is that at certain times of the year the pressures of visitors and the costs that generates are not effectively fed back into the complex array of public services that support such visitors.

It is also because of the nature of such pressures that different councils need discretionary powers to address local circumstances. In Edinburgh during various points of the year visitor pressures are constant , and the demand for paid accommodation ever growing . In some island & coastal communities – Orkney is the prime example – visitors are accommodated on visiting ships , and their presence is felt in the streets of the two towns and on precious heritage sites .

This is also why the key issue seems to me to be the ability for councils to operate appropriate local schemes for any TVL. That’s is as much an issue of practical application and of course of principle – the principle of localised decision making . Community empowerment is also the subject of a current consultation by the Scottish Government . Such local discretion is something, incidentally, that the industry reps at Parliament appeared to be opposed to, unwisely in my view.
But let’s stick with Pete Irvine and take Edinburgh as an example.

People stay in Edinburgh and pay hotel rates that can often be very high indeed – if they can get a hotel – because there are good reasons for wanting to be here.

I live quite near a perfectly reasonable and typical branch of an hotel chain that I have stayed in when travelling and or working elsewhere. It’s not my first choice of chain in the hotel category that I describe as ‘wardrobe/bed/shower/breakfast and meals elsewhere’ but it is of a type that is increasingly successful and in a chain that is growing . There are about 10 of the same badge in and around the city. I pass it often enough to recall seeing a ‘Rooms from £29’ sign, so as a matter of academic curiosity I have tracked room rates there over recent years at certain times of the year.

What such tracking shows is that the ‘£29 per night ‘ may be occasionally available – in Mid-January, parts of February, but not during peak demand periods. The same type of hotel room does double in price, and sometimes triples in price, for Saturday bookings in the middle of July and the busiest periods in the Edinburgh Festivals. The same phenomenon can be seen at Christmas and even more so Hogmanay.

On some occasions they really ‘spike ‘. Late afternoon timing for a recent Calcutta Cup match allowed Saturday travel for visiting fans. The same type of hotel room, same hotel, slightly off centre went from £54 on Friday; to £184 Saturday ; back down to £42 Sunday. I have data showing increase of approximately 200% on nightly rates out of festival and in festival periods.

There are particular concerns in some areas about what types of accommodation people use [AirBnB; staying with friends] but achieved pricing reflects what people want to do, and the price they are prepared to pay to do that. A 1% or 2% levy on some accommodation in some parts of some council areas will not impact on that a great deal.

What it also says is that visitors are not likely to be put off by a small percentage ‘tax de sejour‘ of 1% or 2% on their hotel bills – a cash sum might be very different [and again, in my view, unwise and inequitable].

There are some manageable though potentially difficult problems with TVL on overnight stays, but they can be overcome with intelligent design of any scheme.

The last thing to fear is that a tourist tax will drive visitors away. It doesn’t in Rome, Amsterdam, Venice and – if well designed and locally flexible – is unlikely to do so in those parts of Scotland that can sustain such a tax.

Professor Richard Kerley

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