Hoteliers question allocation of funds as council prioritises housing over tourism
Edinburgh’s landmark Visitor Levy, set to launch in July 2026, has ignited controversy among city hoteliers over its spending priorities, with industry leaders warning that the council’s plan to allocate £5 million annually to affordable housing risks breaching the scheme’s legislative purpose and alienating businesses.
The City of Edinburgh Council’s proposed allocation of the £45- 50 million annual revenue includes 55% (£27.5m) for city operations and infrastructure (street cleaning, lighting, pedestrianisation), 35% (£17.5m) for arts and culture,10% (£5m) for tourism marketing, and 2% (£1m) for participatory budgeting, letting communities decide on local projects.
However, the council’s decision to use £5 million yearly to secure £70 million in loans for affordable housing—aimed at easing the city’s “housing emergency”—has drawn sharp criticism. Critics argue this diverts funds from tourism-specific initiatives, contrary to the Visitor Levy (Scotland) Act 2024, which mandates revenue be spent on “services or facilities substantially for visitors.”
The Federation of Small Businesses (FSB) has led the charge, branding the housing allocation “hard to justify” and warning it could face legal challenges. In its consultation response, the FSB stressed that revenues should prioritise “enhancing the visitor economy,” not subsidising housing, which falls outside the levy’s statutory scope. “Tourism businesses are collecting this tax, yet only 10% is earmarked for marketing Edinburgh as a destination,” said a local hotel manager, who requested anonymity, “meanwhile, cities like Glasgow and the Highlands are reinvesting levies directly into tourism infrastructure and sustainability. Edinburgh’s approach feels like a betrayal.”
Edinburgh’s unique emphasis on housing sets it apart. While the council defends the move—citing the need to house tourism workers—the FSB counters that the link to visitor services is tenuous.
“Tourism workers don’t all need social housing,” argued an FSB spokesperson. “This risks repeating the legal missteps seen with shortterm let regulations.”
Hoteliers also highlight rising administrative costs, with scheme setup expenses ballooning from £250,000 to £650,000 and annual running costs nearing £1 million. “This levy was meant to support us, not burden us with red tape,” said another hotel owner. Council officials maintain the housing allocation aligns with the levy’s goals, ensuring workers can live in the city they serve.
Edinburgh’s approach could set a risky precedent. With 21 Scottish councils exploring tourist taxes, industry groups fear other cities might follow Edinburgh’s lead, diverting funds away from tourism. “If councils treat this as a general revenue stream, it undermines trust in the levy’s purpose,” warned the FSB.
As Edinburgh prepares to implement its 5% Visitor Levy in July 2026, other Scottish cities and regions are following suit, each with unique proposals and rates. There are some common themes across all of Scotland’s areas including street cleaning and maintenance, and cultural and arts support with portions of the revenue directed towards initiatives such as festivals and arts organisations.
Funds are also directed towards sustainability and environmental projects to mitigate the environmental impact of tourism, including conservation efforts and sustainable infrastructure. All cities raise the tax revenue by through hotels, B&Bs, self-catering accommodations, and holiday lets although the spending allocations will vary area-by-area.
Here is a broad overview as things stand right now across other cities.
Glasgow City Council is consulting on a 5% tourist tax. The tax is expected to generate £11-12.5 million annually, with funds earmarked for improving infrastructure, funding events and festivals to attract visitors and boost the local economy. The council is also considering allocating some revenue to affordable housing initiatives. It is likely to go into effect in 2027.
Highland Council is proposing a 5% tourist tax that could generate £10 million annually. The revenue would support tourism infrastructure and services that benefit both visitors and residents incuding developing and maintaining facilities like hiking paths, parking lots, and toilets at popular sites.
It will also support sustainability initiatives which focus on environmental conservation and sustainable tourism practices.
Hoteliers have expressed concerns about the administrative burden and the impact on small operators, suggesting a flat rate instead of a percentage. The tax could be introduced as early as 2026 if approved.
Stirling Council is exploring a 1% to 5% tourist tax, which could generate between £1 million and £7.5 million annually depending on the rate. The funds would be reinvested in local facilities and services used by both visitors and residents, such as infrastructure improvements and tourism-related projects including public toilets and signage. The tax could be implemented by June 2027 if approved.
The proposed rate in Falkirk is 5%, generating £1-1.5 million annually and the funds will support services for visitors including street cleaning and public amenities and is also expected to be implemented in 2027.
Aberdeen, with a proposed levy rate of 7% is expected to generate around £6.8 million annually with an implementation timing of 2027. It has a detailed allocation plan, with 63% of funds earmarked for economic growth, destination awareness and development (18%, destination readiness and improvement (13%) which includes upgrading local amenities and infrastructure with initiatives to improve public spaces, signage, and visitor facilities.
It also has a 5% reserve fund operating as a contingency fund for unexpected opportunities or challenges in the tourism sector. A portion of the revenue will cover the costs of administering the levy, including setup and annual running expenses.
The spending plan was developed in consultation with key stakeholders, including the Aberdeen City and Shire Hotels Association. The council has committed to reviewing the levy every three years to assess its impact and ensure it meets its objectives.
Dundee’s rate is yet to determined with its priorities remaining broader than Aberdeen, focusing on infrastructure and events.
Dundee City Council leader John Alexander has expressed strong support for the levy, emphasising its potential to help invest in the city’s infrastructure and broader economy.
The council is actively considering the levy as it faces a £12 million budget shortfall, with the tax seen as a way to offset funding gaps without burdening local residents.
Argyll & Bute has also expressed interest in introducing a tourist tax, though specific details on the rate and implementation timeline are still under discussion.
Overall, Scotland’s tourist taxes are generally moderate compared to international examples like Amsterdam’s 12.5% or Paris’s high nightly fees. However, Edinburgh’s allocation of funds to housing has sparked debate, contrasting with cities like Barcelona and Venice, which focus more directly on tourism-related improvements.
As Scottish cities refine their plans, the lessons from global examples could help ensure these levies enhance both visitor experiences and local communities. Edinburgh’s approach remains a test case—one that could shape the future of tourism funding across Scotland and beyond. With legal challenges looming and hoteliers threatening to withdraw support, the council faces pressure to revise its allocations. As one industry insider put it: “Edinburgh’s tourism success relies on collaboration. This plan feels like a unilateral strike.
For now, the city’s hotels brace for impact—and hope their voices are heard before the levy goes live in 2026.
Cities around the world use tourist tax revenue in diverse ways, often tailored to address local challenges and enhance visitor experiences.
Here’s a breakdown of how some cities allocate these funds:
Barcelona: The revenue is used to subsidise projects aimed at sustainable tourism, restoring historical heritage, financing scientific research, and supporting cultural and creative activities. Early estimates suggest the tax covers 13-29% of tourism-related expenditures.
Amsterdam: Funds are directed toward mitigating the negative impacts of over-tourism, such as improving infrastructure and managing crowds at popular sites.
Venice: The tax supports initiatives to reduce overcrowding and improve the visitor experience, including developing infrastructure like parking lots and protective fencing around natural sites.
Hamburg:The tax focuses on tourism marketing, culture, and sports events, creating a win-win situation for both the industry and the city. A committee advises on the most effective measures to attract tourists.
Frankfurt:Revenue is earmarked for marketing culture, sports, and city-wide projects, such as Fashion Week and campaigns supporting specific areas of the city.
Austin, Texas: Fifteen percent of the hotel occupancy tax is directed to the local music community, another 15% to historic preservation, and the remaining 70% to the Austin Convention Center.
By Nicola Young
